Preamble

The House met at half-past Two o'clock

PRAYERS

[MADAM SPEAKER in the Chair]

PRIVATE BUSINESS

IMPERIAL COLLEGE BILL

Considered; to be read the Third time.

KING'S COLLEGE LONDON BILL [Lords] (By Order)

Order for Third Reading read.

To be read the Third time on Tuesday 18 March.

LEVER PARK BILL (By Order)

Order for Second Reading read.

To be read a Second time on Tuesday 18 March.

Oral Answers to Questions — DEFENCE

Defence Export Services Organisation

Lady Olga Maitland: To ask the Secretary of State for Defence if he will make a statement on the work of the Defence Export Services Organisation. [18035]

The Secretary of State for Defence (Mr. Michael Portillo): The Defence Export Services Organisation helps the United Kingdom defence industry to export its products and services. Provisional figures show that Britain's defence exporters achieved around 25 per cent. of the world market in 1996, attracting more than £5 billion to this country.

Lady Olga Maitland: I congratulate my right hon. Friend on that excellent news. Does he agree that, put in a different way, that means that Britain's defence exports have increased by 50 per cent. in the past two years? Does he also agree that it is hard for any other sector or country to match that success story? There is another perspective, however. Does he agree that 360,000 jobs in the defence industry could be put at risk by the Opposition's defence review—their cut-and-slash programme to cut defence spending by £5 billion, which would undercut our defence procurement and defence sales?

Mr. Portillo: Everything my hon. Friend says is right. First, it is indeed the case that, in 1994, our share of defence export sales was 16 per cent. of the world market and that today it is 25 per cent., so there has been a 50 per cent. increase. I cannot think of any other industry that has matched that performance, either in this country or elsewhere. My hon. Friend is also right that we can have

that level of defence export sales only if we have reliable home markets. The Labour party is now committed to a defence review with, as its spokesman said, all the painful consequences that would follow. Every time we have challenged Opposition spokesmen to say whether one project or another would be exempted from that review, we have been denied any answer, so we must assume that all defence projects are at risk from Labour's defence review. If our home orders are at risk, obviously our export sales are at risk too.

Mr. Llew Smith: How can the Minister justify subsidising arms manufacturers who sell weapons of death to the most odious dictators, who use them against their own people—as was done in Indonesia, where hundreds of thousands of people from East Timor were murdered?

Mr. Portillo: We carefully observe the United Nations and European Union embargoes. Our country has one of the strictest regimes in the world for the control of arms sales. I am grateful to the hon. Gentleman for making it so clear that, in the event of there being a Labour Government, many Labour Members would like the industrial success story to be choked off. They would like jobs to be lost in Britain, not because of anything that the UN says or any treaty that we have entered into, but because of their political bigotry towards other countries.

Sir John Cope: Will my right hon. Friend confirm that, at our last defence debate, 21 Labour Members were against all arms exports and defence sales of any sort? Their policies would be extremely damaging right across the board to the jobs to which he referred.

Mr. Portillo: My right hon. Friend is right as far as he goes, but the number was as low as 21 only because the frighteners had been put on tens of others. In previous years, a far higher number of Labour Members have said that they wanted to ban defence export sales and were in favour of unilateralism and cutting our defence budget. Each year, the frighteners are put on them.
The point is that if there were to be a Labour Government, those people would be able to exert influence. People know that our defences would not be safe under Labour because of the pressure that would be imposed on Front Benchers by Back Benchers, and because the Front Benchers themselves are at best new converts to defence; I do not believe in them at all.

RAF (Establishment)

Mr. Jim Cunningham: To ask the Secretary of State for Defence if he will make a statement on the estimated establishment of the Royal Air Force at 1 April 1999. [18036]

The Minister of State for the Armed Forces (Mr. Nicholas Soames): The requirement for trained Regular uniformed manpower for 1 April 1999 is forecast to be 52,200.

Mr. Cunningham: Does the Minister agree that, under the Conservatives, the Royal Air Force has received a 40 per cent. cut? Is not that the true legacy of the Tory Government?

Mr. Soames: That is a fluent and telling question: the hon. Gentleman is clearly well on top of the subject and


has a deep knowledge of matters relating to the Royal Air Force. Of course, he is completely wrong: the Royal Air Force has had to go through a difficult period and has reconfigured itself for the new world order, to deal with the challenges that will face it, in common with all our allies and, indeed, our foes. All armed forces have been through a period of downsizing, but the Royal Air Force remains the benchmark against which all other air forces in the world judge themselves. It is highly rapidly deployable and extremely well equipped.

Mr. Wilkinson: May I remind my hon. Friend that 1 April 1999 will be the 81st anniversary of the foundation of the Royal Air Force and the second anniversary of the absorption by the Royal Auxiliary Air Force of the Royal Air Force Volunteer Reserve, forming a Reserve force that will be capable of expansion in time of war and extremely cost-effective in time of peace? Will it not, in short, be an 81st anniversary of which the founder of the Royal Air Force, Lord Trenchard, would be proud? It will be a good basis for taking the service to a glorious future in the next century.

Mr. Soames: I am grateful to my hon. Friend, who is of course completely right. As he knows, because he spoke in the Royal Air Force debate, I announced on that occasion our intention to recruit up to 60 Reservist air crew over the next two years and that the training of the Royal Auxiliary Air Force helicopter support squadron was going well. We shall consider all possible ways of expanding and enhancing the role of the Reserves in the Royal Air Force.

Departmental Art Collection

Mr. Tony Banks: To ask the Secretary of State for Defence how many works of art are missing from his Department's art collection; and if he will make a statement. [18037]

The Minister of State for Defence Procurement (Mr. James Arbuthnot): As a result of inadequate record keeping and controls in the past, 105 works of art are missing from my Department's collection. New control procedures have been introduced and efforts continue to try to find the missing works.

Mr. Banks: I did not realise that there were so many art lovers among the armed forces. I thought that their job was to go around shooting at people, not nicking paintings. The National Audit Office identified 190 pictures as stolen or missing. Is the Minister telling us that some have been recovered? Where were they recovered from? He said that efforts were being made. Will he describe those efforts? For example, has he been visiting Ministers' pieds-à -terre to see whether any paintings have ended up there? Why does not he declare an amnesty so that we can at least recover the paintings, which are worth something like £100,000 of taxpayers' money?

Mr. Arbuthnot: It beats me how the hon. Gentleman, of all people, has the gall to ask such a question. It was he who in 1986 purloined £50,000 worth of silver from the Greater London council. He asks where I have been

looking: I should have been looking in his loft, which is where the GLC silver ended up. It absolutely astonishes me that he has the gall to ask that question.

Mr. Tracey: My hon. Friend knows that only the best security can protect works of art, as the Public Accounts Committee investigation proved. Is he aware that the artefacts that disappeared from county hall during the chairmanship of the hon. Member for Newham, North-West (Mr. Banks) have still not been recovered? Only code marking could have ensured their recovery.

Mr. Arbuthnot: My hon. Friend is no doubt right, although I have not kept track of the GLC silver; perhaps I should have. Perhaps the hon. Member for Newham, North-West (Mr. Banks) should instigate a search of his loft so that he can tell us what has happened.

Defence Exports

Mr. Allason: To ask the Secretary of State for Defence what proportion of the defence industry's output was exported in the last year for which figures are available. [18038]

Mr. Arbuthnot: Although definitive output figures are not available, I estimate that, in the recent past, the percentage of defence goods exported was in the region of 35 per cent. That represents an outstanding success for British industry, and one that is envied worldwide.

Mr. Allason: Will my hon. Friend confirm that a large number of British jobs emanate from defence exports, that there is the most rigorous scrutiny of British export contracts, and that no British export is made in contravention of European Union or United Nations embargoes?

Mr. Arbuthnot: I confirm what my hon. Friend says. We have probably the most rigorous control of exports of any nation. We export responsibly and we shall continue to export responsibly. My right hon. Friend the Secretary of State told the House that we take 25 per cent. of world market share—an astonishing achievement. Those exports bring many benefits to Britain, not only in jobs, but in increased influence overseas and in the reduction of costs to the Ministry of Defence in buying equipment. If we were to put those jobs at risk by introducing a strategic defence review, we would undermine the stability of the defence industry and damage not only jobs but our influence and MOD costs. We must be careful about that as we move towards a general election.

Mr. Gunnell: Is the Minister aware of the proposed closure of IMI Yorkshire Alloys in my constituency and in Smethwick? That company contributes to defence exports and sells directly to the US Navy and to others. Its products are not made by any other company in Britain. Our position will suffer a net loss if the proposed closure goes ahead. Will he look into the closure and its strategic significance for the defence industry to ascertain whether he can make any suggestions to help those who want at least some part of the company to remain in existence?

Mr. Arbuthnot: I was not aware of that proposed closure. We deeply regret job losses following the closure


of any part of the defence industry. In view of the hon. Gentleman's comments, I shall look into the matter in the way that he suggests.

Mr. Day: Is my hon. Friend aware that while the defence industry is important to the nation as a whole, it is of particular importance to the north-west of England, in respect of both the defence and aerospace industries? Has he a message for the many thousands of people in the north-west whose jobs and livelihoods depend on the continuance of present defence policies about the attitudes of the Government and the Opposition to the defence industry?

Mr. Arbuthnot: I do have a message. The defence industry of the north-west is very valuable, and the Government recognise its value. Our defence industry is successful because of the policies that the Government have followed. We have followed policies of competition and privatisation, both of which the Labour party abhors. We have followed policies that improve exports and we have provided stable defence funding. We do not want a strategic defence review that would undermine defence exports and the strength of our defence industry. My hon. Friend is right to draw attention to the importance of the industry in the north-west.

Mr. Spellar: Does the Minister agree that overseas sales depend on orders in the home market? If so, is it not a shame that he did not think about that when ordering the Army field ambulance? We had to mount a massive campaign to save it for Land Rover from the Austrians. Does the Minister comprehend that his comments and those of the Secretary of State will be widely welcomed in Paris, Los Angeles, Fort Worth and anywhere our competitors seek to create uncertainty and to undermine Britain's position? This close to a general election, why does he not stop playing party political games and start backing Britain's defence industry? It all goes to show: "You can't trust the Tories on defence."

Mr. Arbuthnot: —it says here. The answer to the hon. Gentleman's question lies in his own hands. If he is complaining about uncertainty, perhaps he can tell us which of the projects that we have ordered would be exempted from his defence review. For instance, will the replacement maritime patrol aircraft, the Nimrod 2000, be exempted from the defence review? No? I take it, then, that it would not be exempted. Instead of exempting certain elements from a defence review, a more responsible attitude would be to recognise the long-lasting damage that the entire review would do to our British defence industry, and to abandon it lock, stock and barrel.

"Options for Change"

Mr. Nigel Evans: To ask the Secretary of State for Defence what recommendations arising from "Options for Change" are yet to be implemented.[18039]

Mr. Portillo: All the restructuring arising from "Options for Change" has been completed.

Mr. Evans: Does my right hon. Friend agree that our services have dealt admirably with the changes that have resulted from "Options for Change"? Does he agree that

a peace dividend can be spent only once, and that we have spent it? The last thing our services need is a review such as the one threatened by the Labour party, should it form the next Government. We all know what a review means: it is new Labourspeak for cuts, cuts and yet more cuts which would savage our services and wreck procurement jobs in the north-west and elsewhere, decimating defence manufacturing industry in this country.

Mr. Portillo: My hon. Friend speaks with real feeling because jobs are at risk in his constituency and in other constituencies throughout the country. He is absolutely right to say that the armed forces led through the "Options for Change" exercise—and led brilliantly. That enabled our armed forces to adapt to change better than those of any other country. That has now been done; we are now adapted to the new world in which the cold war is over.
My hon. Friend is absolutely right: the defence dividend cannot be taken again and again. Because we have kept our defence strategy fully up to date, there is no need for a strategic defence review. The only reason for the review proposed by Labour is to initiate defence cuts. The attitude of Labour Members shows that they do not care about defence. Even if there were a Labour Secretary of State for Defence who cared about defence—I do not see one in prospect—he would get no support from his Back Benchers and would thus be naked in the struggle to defend the defence budget.

Dr. Reid: That is priceless, coming from the man who instigated the biggest cut in, and the most shambolic continual restructuring of, the armed forces every year for the past decade. Does he realise that any review that we carried out, unlike his efforts, would start by involving the chiefs of staff? Unlike his, it would guarantee two years of financial stability, as we have already made clear. Unlike his, it would interleave foreign affairs and defence, giving us some form of strategy. And unlike him, we would avoid the annual big-bang restructuring.
Have not the right hon. Gentleman and the Government been incoherent in strategy, incompetent in finance and indifferent in welfare? We have always known that the Tories cannot be trusted with the health service; we now know that they cannot be trusted on defence either.

Mr. Portillo: The hon. Gentleman leads with his chin. He has no authority whatsoever from the shadow Chancellor or from the Leader of the Opposition to say that there will be stability under a Labour Government. He has authority to say only that there will be a defence review, and that is why at no time will any Labour Member say what we need to hear: that any of the projects that this Government have ordered are exempt from the defence review. They will not say it because they are not authorised to do so—they are under the thumb of the shadow Chancellor and of the Leader of the Opposition. The Leader of the Opposition wrote in The Daily Telegraph that it would be dishonest to claim that Labour would restore defence to its former level, so the hon. Member for Motherwell, North (Dr. Reid) should not risk being dishonest with the House today.

Mr. King: The necessary changes in "Options for Change" were designed to achieve lower manpower levels but ensure that that manpower had the best equipment available in the world at that time, and I congratulate my


right hon. Friend on the way in which that programme has been carried through. I was struck by one particular feature during the period in which the changes were introduced—I was conscious of the united concern of Conservative Members that our defences might be put at risk. Is he aware that, in contrast, no such concern was expressed by Labour Members? All we heard was exactly what we have heard repeated this afternoon—Labour Members pleading for individual equipment orders and pretending that they are in favour of defence, but actually calling for cuts in overall expenditure on every possible occasion.

Mr. Portillo: The strategy conceived by my right hon. Friend has been carried through with great success, and I pay tribute to him for that. We in this country have been willing to undertake difficult changes involving the reduction of numbers and the reduction of the number of bases from which we operate. As a result, we have been able to put more and more money into defence equipment. A rising proportion of the defence budget goes into the sort of equipment that would enable Britain to triumph in future conflicts. My right hon. Friend is absolutely right to say that, throughout that period, he faced legitimate concern from Conservative Back Benchers and no concern from Labour Back Benchers, and that it is the same today. I have been sustained during my two years as Secretary of State for Defence by the tremendous support that I have had from behind me. Any Labour Secretary of State for Defence would know that what his Back Benchers wanted was savage defence cuts to bring us down to the European average—but Britain is not of the European average.

Army (Establishment)

Mr. Norman Hogg: T: To ask the Secretary of State for Defence if he will make a statement on the current establishment of the Army. [18040]

Mr. Soames: The current trained manpower establishment of the Regular Army, including Gurkhas but excluding the Royal Irish Regiment (Home Service element), is around 106,000.

Mr. Hogg: Is it not true that the Minister spent £500 million and reduced the Army by 50,000, but wound up with a 5,000 shortfall? How did the Minister get misled into such a muddle?

Mr. Soames: I saw the hon. Gentleman being given a run-through of his question—he did not look overly confident then or as he asked it. He is correct when he says that the Army is currently under strength by 5,339 men and women; however, I have some bad news for him, which means that there is good news for the Army. The Army has already recruited 664 officers from a target of 730 for the year and 13,650 soldiers from a target of 15,100—a 50 per cent. increase on the year. We are devoting huge and valuable resources to recruiting; we have a lot more to do and the hon. Gentleman may be assured that we will do it. The Government are hugely proud of the Army. We have throughout had the clear objective that the Army should be brilliantly trained and properly equipped for future wars and operations, and I am glad to say that that is now the case.

Mr. Nicholas Winterton: Will my hon. Friend give me the assurance this afternoon that the Cheshire Regiment is

safe under a Conservative Government, and that there is every chance that the Cheshire Regiment would be in jeopardy under the review that the Labour party would carry out?

Mr. Soames: My hon. Friend is perfectly right. No cap badge in the British Army would be immune from the type of defence review that the hon. Member for South Shields (Dr. Clark) plans; indeed, the hon. Gentleman has already said that such a review would not be free of pain.
I give my hon. Friend the following assurance: for as long as I am Minister of State for the Armed Forces, for as long as there is a Conservative Government, the Cheshires will be a valued and valuable part of the order of battle of the British Army. Opposition Members would have been proud if they had been able to see, as I did, the way in which the Cheshires conducted themselves in Bosnia.

Dr. Hendron: The Secretary of State is aware of the difficulties for young soldiers patrolling the streets of Northern Ireland, and of the brutal murder by the IRA of Stephen Restorick. Bearing that in mind, does he agree that, difficult as it is for soldiers in Northern Ireland, it is extremely important that at all times they do not inadvertently in some way act as recruiting sergeants for the Provisional IRA in their treatment of young people in the streets?

Mr. Soames: The hon. Gentleman makes an important and valuable point. In my judgment, the British Army's conduct in Northern Ireland during the past 25 years will be one of the most glorious chapters in the annals of this country's military history. I am sure that the hon. Gentleman will agree that the British Army has comported itself with great discipline, great skill and great courage on the streets of Belfast, and I wholly endorse exactly what he said.

Mr. Key: Does my hon. Friend agree that it has always been more difficult to recruit for the Army at times of prosperity and falling unemployment? Will he accept my congratulations on the superb advertising campaign run by the Adjutant-General in cinemas and elsewhere? Will he take it from me that, on my last visit to the Army careers office in Salisbury, it was up to target and recruitment was going very well indeed?

Mr. Soames: I am grateful to my hon. Friend—as always—for his support for the armed forces and the Army in particular. I agree entirely that the recent advertising campaign has been a great success. It has won many awards in this country and abroad and we are extremely pleased with it.
I am glad to hear how well recruiting is going in Salisbury. My hon. Friend is right that it is hard, in the south particularly, to recruit when unemployment is falling. We must make greater efforts to give people who enter the Army qualifications that they can use when they leave. We have still a great deal to do, but we shall do it. I am grateful for my hon. Friend's support.

Mr. Murphy: Why cannot the Minister accept that although, since the last general election, the Government have spent £500 million on recruitment schemes and £1.5 billion on making service people redundant, he still


manages to get it all wrong, with a shortfall of more than 5,000 in the Army alone? Does not he personally accept responsibility for that fiasco, or is it all the fault of some nameless civil servant?

Mr. Soames: No, it is not the fault of a nameless civil servant; it is the result of a combination of circumstances and events. Recently, we have been in a demographic trough. When the Government came to power, one in eight young people went on to further and higher education; now, one in three do. We are fishing in a much smaller pool, and we need to work much harder to get the high-quality young men and women we need.
For all the hon. Gentleman's bleating and harping on about the failure to recruit the numbers, if he could see the quality of the people we are getting, he would revise his view and understand that we need to continue to invest in giving those young people the skills that they need in the Army, and train them in the Army so that they can go out into a useful civilian career afterwards.

Cadet Forces

Sir Colin Shepherd: To ask the Secretary of State for Defence if he will make a statement on the role of the services' cadet forces. [18041]

Mr. Soames: The cadet forces continue to play a sterling role in the nation's voluntary youth movement, giving young people their first experience of the armed forces and their way of life and encouraging the development of such qualities as self-reliance, self-confidence and good citizenship.

Sir Colin Shepherd: We in Hereford are proud to have active units of the Navy, Army and Air Force cadets, which are using service concepts of training and discipline to give young people experience and to develop their powers of leadership and responsibility. Will my hon. Friend join me in paying tribute to the many thousands of volunteer adults who give up their time to lead training activities?

Mr. Soames: I am grateful to my hon. Friend. In this respect, Hereford is no different from many other parts of the country. Cadet forces are booming and are playing a vital role in the community. I am glad to hear that they are doing so in my hon. Friend's constituency. I willingly join him in paying a warm and wholehearted tribute to the thousands of adult volunteers, including parents, who freely give of their time to enable young people to acquire the important skills that they learn in the cadet forces. The future of the cadet forces hinges entirely on our being able to attract high-quality volunteers.

Mr. Barry Jones: How will the Minister help the excellent HMS Tuscan in my constituency? Is he aware that when I recently gave awards to this superb unit at Connah's quay dock it was clear to me that the building in which it operated was in urgent need of refurbishment? It was especially in need of efficient heating. Will the Minister assist by supporting my application, and that of the unit, to the national lottery's small charities sector so that the urgent need for heating can be met?

Mr. Soames: The hon. Gentleman is a loyal champion and supporter of the armed forces. I shall gladly support

his project in whatever way I can. He is a regular visitor to the Ministry of Defence and if he would like to talk to me about the matter, I shall be happy to see him.

Sir Cranley Onslow: Will my hon. Friend assure the House that members of the cadet forces will continue to be able to shoot at targets with full-bore weapons?

Mr. Soames: I am happy to give my right hon. Friend that assurance and I am grateful to him for raising the matter. It would be unthinkable for the cadets not to be taught to shoot properly and to learn the disciplines that relate to weapons and the respect that must be shown in skill-at-arms training. Cadets without weapons would constitute a pointless and meaningless operation. We shall ensure that they are properly equipped and properly taught in the vital disciplines that will do so much for them in later life.

Mr. Dalyell: If the cadet forces are, to use the Minister's word, "booming" and are increasing in numbers, what is being done about the necessary increase in the number of rifles, and particularly the security of the armouries in which rifles are kept? Do the cadet forces have the wherewithal to offer the security that, post-Dunblane, people obviously need and want?

Mr. Soames: I share the hon. Gentleman's anxiety about the proper security of weapons. I assure him that the Ministry of Defence takes the matter extremely seriously. We are satisfied that our arrangements for the security of weapons are adequate; indeed, they are excellent and are regularly reviewed. However, I take the hon. Gentleman's point. More cadets are learning to shoot, and in learning that skill they will use deactivated rifles. They will use full-bore rifles only when firing on ranges.

Equipment Expenditure

Mr. Brazier: To ask the Secretary of State for Defence what proportion of the defence budget in the next three years he plans to spend on defence equipment. [18042]

Mr. Arbuthnot: Expenditure on equipment in the current financial year is estimated to be 39 per cent. of the defence budget. On current plans, this percentage will increase steadily over the next three years.

Mr. Brazier: Will my hon. Friend join me in congratulating Amphenol in my constituency on being the largest and most successful manufacturer of electrical connectors for the defence industry throughout Europe? Does not this go beyond the constituency point? Are not companies such as Amphenol playing a vital part in maintaining our defence base? Would not Labour's threatened defence review, which would turn companies' plans and their tooling up and design capability upside down, be just as bad for the companies concerned as it would be for the armed forces?

Mr. Arbuthnot: I am grateful to my hon. Friend for mentioning Amphenol, which is a valued supplier to the Ministry of Defence. We are delighted with the work that it has done for us. We have plans under a Conservative Government to increase spending on major defence


equipment by 15 per cent. by the year 2000. That would be put at risk if it were not exempted from the strategic defence review proposed by the Opposition. Unless they can say that the Brimstone missile, the Storm Shadow missile and the Nimrod 2000 aeroplane will be exempt from the review, those projects will all be at risk. Britain cannot take that risk. We know not only that we cannot trust Labour on defence, but that the entire country cannot trust Labour on defence.

Ms Rachel Squire: It is clear that the future of Britain's defence industry is at risk. I draw attention to the letter in the Financial Times this morning from senior industrialists, including the chief executive of British Aerospace, in which they express their concerns about the consequences of the Government's policies for industry, especially in their approach to Europe and the single market. Does the Minister agree that during the lifetime of the Government, the number of jobs in Britain's defence industry has halved, the Government's contribution has been cut by a third, the industry's success has been due to the industry, in spite of the Government's attempts to wreck it and the Government's— [Interruption]

Madam Speaker: Order. I have noticed today that responses from Ministers have been inordinately long. The hon. Lady will be heard in the House. Come to a conclusion, Ms Squire, but your final words will be heard. Come on.

Ms Squire: Thank you, Madam Speaker—and the Government's refusal to work in partnership with the defence industry and draw up a strategy for a secure and long-term future?

Mr. Arbuthnot: No. The reason I do not agree is that the success of British industry has been shown by the fact that we have been able to take 25 per cent. of the world market share in the past year. That has been due to the competitive policies pursued by the Government, and to the fact that the Government and British industry have worked together to ensure that we succeed in exports. It is also due to the fact that we have privatised defence industry—privatisation that has been opposed every step of the way by the Labour party.

Eurofighter

Mr. Lidington: To ask the Secretary of State for Defence if he will make a statement on the number of Eurofighter aircraft to be ordered by the Royal Air Force. [18043]

Mr. Portillo: We will buy 232 Eurofighters to replace the Tornado F3 and the Jaguar. We may need more in future if Eurofighter proves to be the best replacement for other types of aircraft.

Mr. Lidington: Is my right hon. Friend aware that his answer today will be warmly welcomed by the Royal Air Force, and in particular by my constituents in Halton and at strike command? Does he share my fears that Labour's refusal to exempt the European fighter aircraft from its proposed defence review bodes ill for the future of the Royal Air Force?

Mr. Portillo: It is dismaying that we have been through an entire Question Time and yet again Labour Front

Benchers have been unwilling to say that any of the projects that have been mentioned—projects on which thousands of jobs and our armed forces depend—would be exempt from Labour's defence review. People will draw their own conclusions. The prospect should not be as discouraging as my hon. Friend suggests, because if people draw the right conclusions they will ensure that there is not a Labour Government.

Dr. David Clark: May I make it crystal clear yet again that Labour is fully committed to Eurofighter and will order it in office? Why does the Secretary of State persist in playing party politics over Eurofighter—an aeroplane that is so vital for the RAF and for Britain's aerospace industry? Does he not understand that, by doing so, he is giving succour to Eurofighter's enemies at home and abroad, putting at risk thousands of jobs in Britain and threatening the country's security in years to come?

Mr. Portillo: How many Eurofighters is the hon. Gentleman committed to? Is he committed to the stand-off missile, the amphibious assault ships and the frigates? Why does he not answer those questions? Why does he not tell us to what other projects he is committed? The British people know that he is not committed to those things, and they will draw their own conclusions.

Mr. Atkins: What does my right hon. Friend think will be the painful consequences for Eurofighter, British Aerospace, Leyland Trucks and anyone else who provides defence equipment to our armed forces of a defence review as suggested by the Labour party?

Mr. Portillo: After two months of internal struggle, today the Opposition defence spokesman, the hon. Member for South Shields (Dr. Clark), gave a half-hearted promise about Eurofighter that is not worth the paper that it is not written on. He said nothing about the replacement maritime patrol aircraft, the Leyland orders that my right hon. Friend mentioned or the amphibious assault ships, the missiles, the frigates or any of the other projects that the Government have ordered.
There is time before the general election for people to wake up to what a Labour Government would mean: the destruction of jobs and the elimination of orders that are essential for the defence and security of this country and for the deterrence of threats to this country.

Oral Answers to Questions — PRIME MINISTER

Engagements

Q 1 Mr. Hendry: To ask the Prime Minister if he will list his official engagements for Tuesday 11 March. [18065]

The Prime Minister (Mr. John Major): This morning, I had meetings with ministerial colleagues and others. In addition to my duties in the House, I shall be having further meetings later today.

Mr. Hendry: Does the Prime Minister agree that parents everywhere will welcome today's publication of league tables for primary schools? Does he understand their very real anger at those who would deny them the right to know how their children's schools are


performing? Whether or not schools are doing well, parents have an absolute right to know how their children and their local authorities are performing. We understand that, but Labour does not.

The Prime Minister: I agree with my hon. Friend about the importance of the tables. For the first time, parents will have the information they need to help to choose the appropriate primary schools for their children.

Mr. Foulkes: In Orkney?

The Prime Minister: They do—

Madam Speaker: Order.

The Prime Minister: It is interesting to note that any prospect of choice or information is an appalling proposition for Opposition Members—no wonder they propose to do away with this information if they ever get the opportunity. The tables expose under-achievement and high truancy, and where they occur: in authorities run by the party of the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes).

Mr. Blair: Is the Prime Minister aware of the correspondence from the Association of Meat Inspectors sent to Ministers and the Meat Hygiene Service that shows that, contrary to what we were told last week, serious concern about contamination was being expressed to Ministers and others over a nine-month period and that contamination in abattoirs is getting worse, not better? Those are serious allegations. Will the Prime Minister institute immediate inquiries and ensure that the Minister of Agriculture, Fisheries and Food publishes a full account of the state of abattoirs, of what warnings were given to Ministers, and of what action was taken?

The Prime Minister: In the past few hours I have seen the letter to which the right hon. Gentleman refers since it attained some notoriety on the lunchtime media. I entirely share the concern of the right hon. Gentleman and the Association of Meat Inspectors to ensure the highest standards of hygiene in slaughterhouses. I am surprised by the contents of the letter for two reasons: first, I am surprised because the AMI is responsible for the enforcement of hygiene rules, and I understand that extra staff have been provided to the Meat Hygiene Service, including at least 250 staff who are responsible for inspection. Secondly, I am surprised because the vice-president of the Association of Meat Inspectors, who is a vet—unlike the general secretary to whose letter the right hon. Gentleman referred—said today that he is
fully supportive of the Meat Hygiene Service and everything they have achieved in raising standards".
Notwithstanding that point, I have not yet fully had the chance to investigate the letter, but I will most certainly do so.

Mr. Blair: I thank the Prime Minister for that, but will he ensure that we are given a full account of exactly what was said to Ministers over that period of nine months and what the state of abattoirs is? Is there not an unanswerable case for ensuring that the Ministry of Agriculture, Fisheries and Food does not look after the interests of the industry and consumers together, and that we set up a

proper, independent food standards agency that can look into these matters and monitor them on behalf of the public?

The Prime Minister: The right hon. Gentleman raises two important points. Let me try to answer him in some depth on both of them.
As to the importance of what Ministers have been doing, I understand that my right hon. and learned Friend and my hon. Friend the Parliamentary Secretary have had a total of 22 meetings on hygiene matters over the last year to deal with abattoirs and related matters. That series of meetings continues, which shows the extent of the Government's concern. I will, of course, look personally at what has happened about those meetings.
I share the right hon. Gentleman's view on the need for independent advice. The point of distinction between us is whether it should come from an agency, or independent advice from scientific experts, but not necessarily an agency— [Interruption]I will explain why not necessarily an agency, and I will use the words that are often used by hon. Members when criticising agencies that exist. Hon. Members often say to me that agencies do not stand at the Dispatch Box; that they are not answerable for what is happening. On a matter such as food safety—the right hon. Gentleman just asked that my right hon. and learned Friend the Minister of Agriculture, Fisheries and Food be held accountable—it is, perhaps, right that there should be independent advice. I agree with the right hon. Gentleman about that and we have set it in train, but a Minister should stand at the Dispatch Box and answer for the advice that he receives.

Mr. Blair: I thank the Prime Minister for that, but I would just point out to him that, in the letter written last Wednesday, the Association of Meat Inspectors said that far from being encouraged to enforce stricter hygiene standards,
MHIs are being actively encouraged to ignore breaches of regulations and in some cases threatened if they try to take action".
I understand that inspectors have a responsibility, but surely Ministers do as well. I therefore ask the Prime Minister whether, as a result of his previous answer, he is prepared to look again at the possibility of an independent food standards agency—not to commit himself to it today, I understand that—as a better way to deal with these issues.

The Prime Minister: I am grateful for the way in which the right hon. Gentleman poses his question. Let me deal with the first part of it and what instructions were given to inspectors.
Inspectors have been given clear instructions to apply the rules firmly: for example—to pick up one of the points in the letter—if they see signs of any form of contamination, not to stamp meat as fit for human consumption. Their job is to stop such meat reaching the consumer. Abattoir managers and owners who flout those rules face prosecution. The right hon. Gentleman will know of the monthly report on observance of bovine spongiform encephalopathy rules. In addition, members of the AMI—the inspectors—know that they face disciplinary action if they fail to enforce the rules properly. That is a real threat. The Meat Hygiene Service has dismissed a number of employees and disciplined rather more for inadequately carrying out the public safety responsibility of careful examination of abattoirs, and that is right.
Of course I will look at the question of independent advice, but for the reason that I set out a moment ago I do not favour a food standards agency.

Mr. Gallie: To ask the Prime Minister if he will list his official engagements for Tuesday 11 March. [18066]

The Prime Minister: I refer my hon. Friend to the answer I gave some moments ago.

Mr. Gallie: Does my right hon. Friend welcome, as I do, the high level of investment in the electronics industry in central Scotland? Does he recognise the importance to that industry of manoeuvrability of components and products? Will he consider the requirements of fifth freedoms, which could benefit that industry, particularly by using Prestwick airport as a gateway?

The Prime Minister: As my hon. Friend will know, I visited Prestwick airport 10 days ago to look at its excellent cargo facilities. Granting fifth freedom rights to foreign airlines using Prestwick is attractive, provided United Kingdom airlines are given a fair opportunity to compete and there are matching rights for UK airlines overseas. I shall certainly ensure that my right hon. Friend the Secretary of State for Transport is aware of my hon. Friend's comments. I share my hon. Friend's belief that good transport links are vital to that success.

Mr. Ashdown: If, as the Government claim—

Mr. Nicholas Winterton: Welcome to the role of grandparent.

Mr. Ashdown: Yes, we hope that we shall be.
If, as the Government claim, today's primary school league tables are a fair and accurate judge, will the Prime Minister consider two facts? Of the top 20 local education authorities, eight have Liberal Democrat control, three have Labour control and only two have Conservative control. According to the tables, Britain's primary education system is now, in the words of The Express,the worst in the western world and a national disgrace. After 18 years of Conservative government, does the Prime Minister take any responsibility for that, or is it the fault of the teachers and the Opposition parties?

The Prime Minister: If it were not for the fact that we introduced this information, nobody would know precisely what was happening in schools. As to standards in secondary and primary schools, the fact is that, across the board, it is long-standing Conservative authorities that have the best results, certainly not Labour authorities. The 20 worst secondary schools and the 10 worst primary schools are in Labour authorities. The schools for which the right hon. Gentleman takes credit have been Conservative run for many years, and have only recently been run by the Liberal Democrats.

Mr. John Greenway: To ask the Prime Minister if he will list his official engagements for Tuesday 11 March. [18067]

The Prime Minister: I refer my hon. Friend to the answer I gave some moments ago.

Mr. Greenway: Will my right hon. Friend join me in congratulating the Chartered Insurance Institute on its centenary year, which is marked by a major international insurance conference at Westminster today? Are not Governments throughout the world increasingly turning to the private sector to help to meet long-term social costs? Does my right hon. Friend agree that a partnership between insurance companies and the state is the best way of ensuring that future generations can meet their pension needs?

The Prime Minister: If we wish to enshrine the welfare state for our children and our grandchildren, it is necessary to look again at how we can ensure that the provision that is made today is still affordable in years to come. That is why we produced the plans on basic pension plus. That is why my right hon. Friend the Secretary of State for Health yesterday announced our partnership scheme for long-term care, and that is why further plans will be announced tomorrow. We are seeking to ensure that the welfare state is enshrined for the long term by taking decisions that every hon. Member knows need to be taken if we are to ensure the continuation and improvement of welfare provision.

Mr. Ashton: As we are only three or four weeks away from the official start of the general election campaign, will the Prime Minister tell us whether, a few weeks before the last general election, the Conservative Government did a deal with the tobacco companies, in which several hundred hoardings were given to the Conservative party in return for an agreement that there would be no ban on tobacco advertising? Is that true? Will he confirm that that deal will not be done again?

The Prime Minister: I confirm that no deals are being done, although I have noticed one: the substantial advertising campaign by the trade unions. Those trade unions fund the Labour party when the deputy leader is not abroad raising funds for the party before denouncing the Conservatives, whom he claims do the same thing.

Mr. Butler: To ask the Prime Minister if he will list his official engagements for Tuesday 11 March. [18068]

The Prime Minister: I refer my hon. Friend to the answer I gave some moments ago.

Mr. Butler: Will my right hon. Friend join me in congratulating the Church primary schools on their exceptional performance, as shown in the league tables that were published today? Is that not further and conclusive proof that traditional teaching methods, employed in an atmosphere in which achievement is expected and there are strict rules and discipline, are not only the most successful but the only proper methods?

The Prime Minister: My hon. Friend is right to point to the excellent performance of the Church primaries. About 60 of the 100 best-performing schools in the tables are either Church or grant maintained. They show the success of a policy of promoting choice and diversity in our education system if we wish to promote excellence.
[HON. MEMBERS: "Oh."] I note the hatred of diversity and excellence on the Opposition Benches. I note Opposition plans to abolish grant-maintained schools, to undermine Church schools and to give local education authorities unprecedented control over them. It is very interesting indeed that members of the Labour party would like to deny other parents the opportunities that they exercise themselves.

Ms Walley: To ask the Prime Minister if he will list his official engagements for Tuesday 11 March. [18069]

The Prime Minister: I refer the hon. Member to the answer I gave some moments ago.

Ms Walley: Does the Prime Minister recall that, five years ago yesterday, the then Chancellor of the Exchequer

promised in his Budget speech that he would not increase VAT on fuel? Are we not entitled to know now why the Government did not go ahead with that?

The Prime Minister: I think that we are entitled to know by what amount a windfall tax will add to the cost of fuel for people—and the cost of water, and the cost of all the other utilities. We are promised such a tax; we have not been given any information about the impact of that tax on either the consumer—

Ms Walley: indicated dissent.

The Prime Minister: There is no point in the hon. Lady's shaking her head; this is the fact of the matter. We have not been given any information about the impact of the tax on either the consumer or the dividends of hundreds of thousands of investors in those industries.

Points of Order

Mr. Tony Banks: On a point of order, Madam Speaker. During Defence questions, the hon. Member for Surbiton (Mr. Tracey) made a statement that was unfortunately untrue. He suggested—in fact, he did not suggest; he stated—that the silver that I had removed from county hall for safe keeping, to prevent it from being stolen—which, if I may say so, was more than Defence Ministers were able to do for their paintings—had not been returned.
The silver was, of course, handed over to the London residuary body, and was all accounted for. We will get it back when the new Greater London authority is set up. I ask you, Madam Speaker, to invite the hon. Member for Surbiton to correct the record, withdraw his statement and apologise.

Mr. Richard Tracey: Further to that point of order, Madam Speaker. You will have noted that I made no mention of silver; I said "artefacts". I certainly did not say that the hon. Member for Newham, North-West (Mr. Banks) had taken them. I said that they had disappeared from county hall, and, as far as I am aware, they have still not been returned.

Madam Speaker: Those are not points of order. The hon. Member for Newham, North-West (Mr. Banks) has certainly made his case, and the matter must rest there.

Mr. Brian Wilson: On a point of order, Madam Speaker. I understand that the hon. Member for Ryedale (Mr. Greenway), who asked the Prime Minister a question about the insurance industry, is a paid consultant to the Institute of Insurance Brokers, and a director of an insurance company. Should not that interest have been declared?

Madam Speaker: Not during parliamentary questions. [HON. MEMBERS: "Why not?"] Order. The House determined some time ago that it was not always possible for an hon. Member putting a parliamentary question to declare his interest. Of course, we expect it at the very beginning when any hon. Member makes a speech.

Several hon. Members: rose—

Madam Speaker: Order. I have not finished yet. Hon. Members must sit down. I think that the hon. Member for Cunninghame, North (Mr. Wilson) has made his point, and that the House fully understands it.

Mr. Ian Bruce: Before the hon. Member for Cunninghame, North (Mr. Wilson) leaves with his electronic device, could you confirm, Madam Speaker, that there is a ban, enforced by yourself, on electronic devices? When an hon. Gentleman has a message from the hon. Member for Hartlepool (Mr. Mandelson) on his electronic device, which he reads at the Dispatch Box, I suspect that that is a new departure for the House.

Madam Speaker: I would not know who is on the electronic device, but I have requested that electronic devices—which make noises, of course—are not used in the Chamber, and I want to see that carried out.

Mr. Bill Walker: Are you, Madam Speaker, like me disturbed at the question of interest that

was raised by the hon. Member for Cunninghame, North (Mr. Wilson), who himself failed to declare an interest yesterday, a point that I drew attention to in my speech? I find it astonishing that he should come to the Dispatch Box on the following day to make a point about interest, when he himself failed to declare an interest in a speech.

Madam Speaker: I was not aware of that, but I repeat that all Members who have an interest must declare that interest as soon as they rise to begin a speech.

Mr. David Shaw: My concern is that the hon. Member for Cunninghame, North (Mr. Wilson), who rose to the Dispatch Box just now, did not declare £100,000-worth of grants to his company from the Highlands and Islands development board. My hon. Friend the Member for North Tayside (Mr. Walker) made that point yesterday. The hon. Member for Cunninghame, North was in full knowledge of that point, and could have said at the Dispatch Box that he himself was guilty of a non-declaration in a speech yesterday.

Madam Speaker: I have replied to that point of order, which was put to me by the hon. Member for North Tayside (Mr. Walker).

Mr. Seamus Mallon: On a point of order, Madam Speaker. Could I have your guidance? I tabled a question to the Secretary of State for the Home Department asking what representations had been received from the German Government in relation to bail for Roisin McAliskey, through what channels, and when they were received. Those must be matters of record in that Department; they have been going on for the past four months. The reply is:
I will reply as soon as possible.
Will you give a ruling that, where information is readily available in a Department, it should be available to hon. Members in answer to parliamentary questions?

Madam Speaker: I have no comment to make on that. The hon. Gentleman has had his response from the Minister, who says that he will reply as soon as possible.

Mr. John Greenway: I understand that, a few moments ago, when I had left the Chamber, the hon. Member for Cunninghame, North (Mr. Wilson) alleged that I had failed to declare an interest in the question that I raised with the Prime Minister. All my interests with the insurance industry are declared in the Register of Members' Interests, and have been for many years, but I have no interest in the Chartered Insurance Institute. It is the main education insurance body in the world, is celebrating its 100th anniversary this week, and is not a commercial organisation.
The hon. Gentleman, who did not give me notice that he was going to raise that point, has demonstrated the extent to which the Labour party has a deep distrust of the insurance industry.

Madam Speaker: I dealt with the matter at the time, as the hon. Gentleman will see when he reads Hansard.

Ms Hilary Armstrong: I wonder whether you can help me, Madam Speaker
The hon. Member for Dover (Mr. Shaw) declares in the Register of Members' Interests that he has a remunerated directorship in the AdScene Group plc, a newspaper company. Should he not have further declared that he is using that group's headquarters to telephone-canvass for the general election?

Madam Speaker: I have no evidence of that at all.

Mr. Nicholas Winterton: Would you, Madam Speaker, clarify your reply to a point of order that was raised a few moments ago? Is it appropriate, correct and permissible to use an electronic device in this House and use it while raising a point of order? You said that you deplored the use of electronic devices that make a noise; you did not specify whether you deplored the use of electronic devices that do not make a noise.

Madam Speaker: I do not think that such an incident has occurred previously. Personally, I do not like the use of such devices in the Chamber. I think that hon. Members should be aware and alert enough to determine for themselves what they are going to say. I should like to consider the point, if I may.

Mr. Robert G. Hughes: Further to the points of order raised about the point of order raised by the hon. Member for Cunninghame, North (Mr. Wilson), Madam Speaker. Following what my hon. Friend the Member for Ryedale (Mr. Greenway) said, plainly the point made about him by the hon. Gentleman was factually inaccurate and wrong. Should not the House consider the point that the hon. Gentleman was receiving instructions from somebody via his pager—presumably the Labour party dirty tricks department? Should we not know who was giving him his instructions, and for whom he was acting merely as a messenger boy?

Madam Speaker: The House has heard what I have said. I will consider the matter, and will certainly rule on it at the earliest opportunity.

Mr. Tam Dalyell: Pursuant to the issue of pregnant women in prison raised by my hon. Friend the Member for Newry and Armagh (Mr. Mallon), whereas you are of course right in saying that, if the Home Office response was that it had no information, it might be correct, it is nevertheless a widespread understanding of hon. Members that there is information in the Home Office. As a pregnant woman is in prison in such circumstances, should not the House of Commons dig a little deeper to find out the facts—if, as we are told, information in the Home Office is available?

Madam Speaker: As I understood it, the hon. Member for Newry and Armagh (Mr. Mallon) said that the Minister had replied that he would respond as soon as possible. That does not mean that the Home Office has no information. The Minister said that he would respond as soon as possible, and I expect him to do so.

Several hon. Members: rose—

Madam Speaker: Who is next? This is rather nice. I call Sir Michael Neubert.

Sir Michael Neubert: Further to your statement a moment ago, Madam Speaker. Would you

include in your review the possibility that, if messages are to be communicated to Members in the Chamber by means of the device you have in mind, they could equally be communicated by an earphone in the ear—which, in my opinion, should also be outlawed in this assembly?

Madam Speaker: This is a very difficult matter, but I will look at it.

Mr. Dennis Skinner: I have got an old-fashioned device here: it is a bit of paper. It says on it that the Tory party was bankrupt last year—by 19 million quid—but it now has a surplus of £40 million. The question is whether anybody will stand up and tell us where the Tories have got it from.

Madam Speaker: I will stand up and tell the hon. Gentleman that the House has had enough of this nonsense.

Several hon. Members: rose—

Madam Speaker: I will take only serious points of order from now on.

Mr. David Shaw: rose—

Madam Speaker: I have already taken a point of order from the hon. Gentleman, and will not take another.

Mr. Phil Gallie: On a point of order, Madam Speaker.

Madam Speaker: Are you sure that it is a point of order, Mr. Gallie? It is not just something that has just occurred to you?

Several hon. Members: rose—

Madam Speaker: Wait a minute.

Several hon. Members: rose—

Madam Speaker: Order. Mr. Clifton-Brown has been bobbing up and down. I shall take a point of order from him.

Mr. Geoffrey Clifton-Brown: As we on the Conservative Benches clearly heard the bleeper being operated by the hon. Member for Cunninghame, North (Mr. Wilson), do we have—

Madam Speaker: Order. Sit down.

Mr. Kevin McNamara: On a point of order, Madam Speaker. You will remember that a former Member of this House, who is now a Member of the upper House, had a device that enabled him to take part in debates and understand what was going


on. Will you in your ruling take particular care for our colleagues who are blind, deaf or disabled in some other way?

Madam Speaker: Indeed.

Mr. David Winnick: Would not your difficulties be eased somewhat, Madam Speaker, if the general election were called now, to ease the pre-election atmosphere?

Madam Speaker: West Bromwich, West has been awaiting me for a long time. I should like it to be called as soon as possible.

Mr. Ian Bruce: rose—

Madam Speaker: The hon. Gentleman has already made a point of order. He will resume his seat—one point is enough.

Mr. Denis MacShane: On a point of order, Madam Speaker. Very simply, I ask for your guidance. You said earlier that the matter of declarable interests on the Register was not relevant to parliamentary questions. However, the sheet for parliamentary questions says "tick". So what is the guidance?

Madam Speaker: Of course it does, but I do not expect an hon. Member who is asking a supplementary question to begin with a long preamble declaring his interests. That information is already declared. We would have to extend Question Time to three hours if I were to expect hon. Members to declare their interests before asking a question.

Mr. Ian Bruce: On a point of order, Madam Speaker.

Hon. Members: Sit down.

Madam Speaker: Order. Let me hear the hon. Gentleman, as he is very anxious. He has already made one point of order, so this one must be very important.

Mr. Bruce: I wonder, Madam Speaker, whether you can give some help to a constituency Member. I am trying, on behalf of Labour and Liberal Democrat councillors, to get to the bottom of germ warfare tests that were conducted in my constituency 30 years ago. I have approached Ministers on the matter, but they have told me that they are unable to obtain the advice given to the then Secretary of State for Defence by his scientists on whether those tests were safe.
In Dorset, we cannot discover exactly what happened and who knew what. My point of order is to ask whether it would be possible for Lord Healey, who was Secretary of State for Defence at the time, to examine those papers and to report to me and to the House on what has happened to my constituents.

Madam Speaker: The activities of any Member of the upper House have nothing to do with me. The

hon. Gentleman might have thought of the problem—which he has faced for a long time—rather earlier, and initiated a full Adjournment debate on it, in which he would have received a reply from a Minister.

Mr. Gallie: rose—

Madam Speaker: Has the hon. Member already made a point of order?

Mr. Gallie: No, Madam Speaker.

Madam Speaker: Then he must.

Mr. Gallie: Bearing in mind Column 41 of yesterday's Hansard, the comment on the large sums of money paid to a company with which the hon. Member for Cunninghame, North (Mr. Wilson) is associated, the fact that he has returned to the Chamber, and your earlier comment, Madam Speaker, would it not be in order for him to apologise to the House?

Mr. Wilson: As a small business man, I am very proud of my association with that company. I am also very proud of the fact that, from the day that it was formed, I have both practised and preached openness about every penny that it should receive; if only Conservative Members would practise or preach the same. My association with that company is well known, and it is and always has been registered in the Register of Members' Interests.
What Conservative Members object to so strongly is that a very successful socialist newspaper is operating in that part of Scotland. It has been very influential, and it will continue to be very influential in making the highlands and islands of Scotland a Tory-free zone.

Madam Speaker: Order. The hon. Gentleman should have made the declaration yesterday.

BILL PRESENTED

SINGLE HOMELESS PERSONS (SCOTLAND)

Mr. Andrew Welsh, supported by Mr. John McAllion, Mr. James Wallace, Ms Roseanna Cunningham, Mrs. Maria Fyfe and Mr. David Marshall, presented a Bill to make provision about single homeless persons in Scotland; to make reforms of the laws on homelessness, social security and housing benefits; to set up a National Hostels Inspectorate and national standards for care; to make amendments to the Representation of the People Act; to give additional duties to General Practitioners; to amend the duties and powers of local authorities relating to young people in care; to cede to the European Union competence over specific matters relating to housing and homelessness; to outlaw discrimination on the grounds of homelessness; and related matters: And the same was read the First time; and ordered to be read a Second time upon Friday 2 May, and to be printed [Bill 133].

Warm Homes and Energy Conservation (Fifteen Year Programme)

Mr. Alan Simpson: I beg to move,
That leave be given to bring in a Bill to require the Secretary of State to draw up and facilitate the carrying out, over a period of fifteen years, of a programme of action to provide at least 500,000 households per year with a comprehensive package of home insulation and other energy efficiency improvements; and for connected purposes.
In the first two weeks of January 1997, 10,000 more people died than we would normally expect in the period at the beginning of the year. Those deaths coincided with a winter freeze, and they were overwhelmingly cold-related. Although that excessive number might have been extreme, it is difficult to say that it was unusual.
In that context, it is difficult to know whether we should be debating this as a scandal or a tragedy. Those deaths form part of the annual cull of the fuel-cold and old in Britain. They are caused by neglect, and are the price paid by the public for Britain's failure to have a serious programme to challenge and eliminate fuel poverty. The 50,000 avoidable deaths each winter are concentrated among those who have to make the difficult choice between eating and heating during the freeze. One could say, sadly, that at least their dilemma is resolved by death.
The situation is a scandal. Britain has poorer home insulation standards than those set by Scandinavia in 1945—more than 50 years ago. Some 8 million households in Britain today are fuel-poor, meaning that more than 15 million people shiver their way through each winter; they shivered through last winter, and they will shiver through next winter and all succeeding winters until we face up to the root cause of the situation—the problem of cold homes in this country.
Britain is not indifferent to the problem of the fuel-poor. A plethora of local initiatives make laudable efforts to tackle fuel poverty. A patchwork quilt of Government schemes attempt to do the same, but they are a piecemeal series of fragments, not a coherent policy. The Bill would reclaim the integrity of this House, which once was not afraid to engage in the joined-up thinking that we were then proud to call a housing policy. The Bill does not duck some of the difficult issues involved. It offers a serious programme, with a 15-year commitment to providing 500,000 households a year with a comprehensive package of home insulation and energy-saving materials.
Hon. Members of all parties have been involved in drawing up the Bill. They know that there are real costs involved. We have tried to provide background briefings that do not duck the issues. We know that there would be a net saving to the country over 15 years of more than £3 billion—a saving in health care costs, a saving in avoidable housing costs, a saving in the 50 per cent. of wasted energy that pours out of Britain's housing because of inadequate insulation, and a saving in lives. However, the programme has to be sustained on the basis of initial funding to launch it.
To reflect the diversity of those who are behind the Bill, we have tried to offer different ways to fund the programme, so that no party should feel unable to support

it. However, we all recognise that the common starting point is that Britain must spend to save—to save on health care costs, to save on housing stock and administration costs, to save on environmental pollution, and to save lives. That is necessary to tackle the current scandal.
Britain is alone among European countries in having a long-standing problem of death through hypothermia in winter. In other parts of Europe, while people know that they may die if they are caught outside in a snow blizzard, they do not expect to die in the coldness of their home. I know of no pensioner in the land who looks forward to the bracing experience of shivering to death throughout the winter, but I know many who fear that they will face that reality.
We need to tell those pensioners that the House will tackle the dereliction of their housing experience. The root cause of that is the dereliction of our political obligations. Those derelictions are in the absence of a serious programme to tackle and eliminate fuel poverty.
The financing of the Bill would be an exciting prospect. I have had support from both sides of the House, and the Bill has brought together a gathering of the great and good outside the House. It is important to note that its supporters range from Age Concern to the Child Poverty Action Group, from local authorities to Neighbourhood Energy Action, from the Churches to the chambers of commerce and virtually every environmental campaign group. Each of those supporters expects not that the Bill will become law in the dog days of this Parliament, but that it will set the agenda for the Government who are to come, and the century to come.
The Bill is the declaration of the public expectation of what Parliament has to deliver sooner rather than later. I am pleased to be able to introduce the Bill with the support of hon. Members from all parties. Better still is the recognition that it is a Bill, not for all parties, but for all seasons. It is a Bill to restore to the people the right to enjoy our seasons, not to live in fear of them.
It is a Bill to eliminate fuel poverty and restore to people the right to know that they can face a winter without simply having to pray that they may hibernate through the coldest parts of it. On that basis, I am proud to present the Bill, and I hope that it will be given further platforms until it becomes an Act of Parliament.
Question put and agreed to.
Bill ordered to be brought in by Mr. Alan Simpson, Mr. Matthew Taylor, Mr. Harry Greenway, Ms Diane Abbott, Mr. Peter Temple-Morris, Mrs. Margaret Ewing, Mr. Llew Smith, Mr. Cynog Dafis, Sir Robert Hicks, Mr. John McAllion and Sir Andrew Bowden.

WARM HOMES AND ENERGY CONSERVATION (FIFTEEN YEAR PROGRAMME)

Mr. Alan Simpson accordingly presented a Bill to require the Secretary of State to draw up and facilitate the carrying out, over a period of fifteen years, of a programme of action to provide at least 500,000 households per year with a comprehensive package of home insulation and other energy efficiency improvements; and for connected purposes: And the same was read the First time; and ordered to be read a Second time upon Tuesday 18 March, and to be printed [Bill 132].

FINANCE BILL [WAYS AND MEANS]

Resolved,
Deductions in respect of annuity payments
That provision may be included in the Finance Bill about payments made in respect of annuities by companies carrying on life assurance business.—[Mr. Brandreth.]

Resolved,
Transactions in futures and options etc
That provision may be included in the Finance Bill about the taxation of profits and gains arising from a transaction involving the disposal of—

(a) rights and obligations under a commodity or financial futures contract; or
(b) a traded or financial option or an option relating to such a contract.—[Mr. Brandreth.]

Orders of the Day — Finance Bill

As amended (in the Committee and in the Standing Committee), considered.

Mr. Edward Leigh: On a point of order, Madam Speaker. By long-standing practice, you have the right to reject or accept new clauses and amendments for debate. I seek your guidance. You will have noticed that this morning I tabled new clause 7 for debate. It was signed by more hon. Members than any of the others—50, I think—and was the only one with all-party support. The new clause concerns transferable allowances, which are of vital concern.
From the provisional selection list, I see that you decided not to select my new clause. Without asking you to give your reasons, is it too late to ask you to reconsider, or to give me guidance on when I can raise the matter? From reading the list of amendments that you have selected for debate, it seems to me that there will be no opportunity to debate transferable allowances on the marriage care allowance issue on Report. If that is not possible, could I raise the matter on Third Reading?
I had hoped that, when replying, the Minister would agree that I had made a good point and say that he should produce a report. I am anxious to get the matter on the record and for there to be some debate on this important issue.

Madam Speaker: It is far too late for me to reconsider. I gave full consideration to the new clause this morning. The hon. Gentleman might try to raise the issue on Third Reading if he so wishes. I regret the fact that he has been disappointed, but he has answered the point of order himself: I do not give reasons for non-selection.

New clause 8

ANNUITY BUSINESS OF INSURANCE COMPANIES

'.—(1) In section 437 of the Taxes Act 1988 (extent to which payments in respect of new annuities are to be treated as charges on income), for subsections (1A) and (1B) there shall be substituted the following subsection—
(1A) In the computation, otherwise than in accordance with the provisions applicable to Case I of Schedule D, of the profits for any accounting period of a company's life assurance business, new annuities paid by the company in that period shall be brought into account by treating an amount equal to the income limit for that period as a sum disbursed as expenses of management of the company for that period.
(2) In subsection (1C) of that section (interpretation of section), after "this section" there shall be inserted "(but subject to subsections (1CA) to (1CD) below)"; and after that subsection there shall be inserted the following subsections—
(1CA) Where a new annuity ('the actual annuity') is a steep-reduction annuity, the income limit for an accounting period of the company paying the annuity shall be computed for the purposes of this section as if—

(a)the contract providing for the actual annuity provided instead for the annuities identified by subsections (1CB) and (ICC) below; and
(b)the consideration for each of those annuities were to be determined by the making of a just and reasonable apportionment of the consideration for the actual annuity.

(ICB) The annuities mentioned in subsection (1CA)(a) above are—

(a)an annuity the payments in respect of which are confined to the payments in respect of the actual annuity that fall to be made before the earliest time for the making in respect of the actual annuity of a reduced payment such as is mentioned in section 437A(1)(c); and
(b)subject to subsection (1CC) below, an annuity the payments in respect of which are all the payments in respect of the actual annuity other than those mentioned in paragraph (a) above.

(1CC) Where an annuity identified by paragraph (b) of subsection (1CB) above ('the later annuity') would itself be a steep—reduction annuity, the annuities mentioned in subsection (1CA)(a) above—

(a) shall not include the later annuity; but
(b) shall include, instead, the annuities which would be identified by subsection (1CB) above (with as many further applications of this subsection as may be necessary for securing that none of the annuities mentioned in subsection (1CA)(a) above is a steep—reduction annuity) if references in that subsection to the actual annuity were references to the later annuity.

(1CD) Subsections (1CA) to (1CC) above shall be construed in accordance with section 437A.
(3) After that section there shall be inserted the following section—
"Meaning of 'steep-reduction annuity' etc
437A.—(1) For the purposes of section 437 an annuity is a steep—reduction annuity if—

(a)the amount of any payment in respect of the annuity (but not the term of the annuity) depends on any contingency other than the duration of a human life or lives;
(b)the annuitant is entitled in respect of the annuity to payments of different amounts at different times; and
those payments include a payment ('a reduced payment') of an amount which is substantially smaller than the amount of at least one of the earlier payments in respect of that annuity to which the annuitant is entitled.

(2) Where there are different intervals between payments to which an annuitant is entitled in respect of any annuity, the question whether or not the conditions in subsection (1)(b) and(c) above are satisfied in the case of that annuity shall be determined by assuming—

(a)that the annuitant's entitlement, after the first payment, to payments in respect of that annuity is an entitlement to payments at yearly intervals on the anniversary of the first payment; and
(b)that the amount to which the annuitant is assumed to be entitled on each such anniversary is equal to the annuitant's assumed entitlement for the year ending with that anniversary.

(3) For the purposes of subsection (2) above an annuitant's assumed entitlement for any year shall be determined as follows—

(a)the annuitant's entitlement to each payment in respect of the annuity shall be taken to accrue at a constant rate during the interval between the previous payment and that payment; and
(b)his assumed entitlement for any year shall be taken to be equal to the aggregate of the amounts which, in accordance with paragraph (a) above, are treated as accruing in that year.

(4) In the case of an annuity to which subsection (2) above applies, the reference in section 437(1CB)(a) to the making of a reduced payment shall be construed as if it were a reference to the making of a payment in respect of that annuity which (applying subsection (3)(a) above) is taken to accrue at a rate that is substantially less than the rate at which at least one of the earlier payments in respect of that annuity is taken to accrue.

(5) Where—

(a) any question arises for the purposes of this section whether the amount of any payment in respect of any annuity—
(i) is substantially smaller than the amount of, or
(ii) accrues at a rate substantially less than, an earlier payment in respect of that annuity, and

(b) the annuitant or, as the case may be, every annuitant is an individual who is beneficially entitled to all the rights conferred on him as such an annuitant,

that question shall be determined without regard to so much of the difference between the amounts or rates as is referable to a reduction falling to be made as a result of the occurrence of a death.
 (6) Where the amount of any one or more of the payments to which an annuitant is entitled in respect of an annuity depends on any contingency, his entitlement to payments in respect of that annuity shall be determined for the purposes of section 437(1CA) to (1CC) and this section according to whatever (applying any relevant actuarial principles) is the most likely outcome in relation to that contingency.
(7) Where any agreement or arrangement has effect for varying the rights of an annuitant in relation to a payment in respect of any annuity, that payment shall be taken, for the purposes of section 437(1CA) to (1CC) and this section, to be a payment of the amount to which the annuitant is entitled in accordance with that agreement or arrangement.
 (8) References in this section to a contingency include references to a contingency that consists wholly or partly in the exercise by any person of any option.
(4) Section 434B(2) of that Act (treatment of annuities paid by an insurance company) shall cease to have effect and accordingly—

(a)in section 76(2A)(b) of that Act (limit on expenses of management of insurance companies), the word "and" shall be inserted at the end of sub-paragraph (ii), and sub-paragraph (iv) (together with the word "and" immediately preceding it) shall be omitted; and
(b)in section 337(2B) of that Act, for "the references in sections 338(2) and 434B(2)" there shall be substituted "the reference in section 338(2)".

(5) In paragraph 9B of Schedule 19AC to that Act (subsection (3) inserted in section 434B in relation to overseas life insurance companies), for the words from the beginning to "An" there shall be substituted—
9B. The following section shall be treated as inserted after section 434A—
Treatment of annuities 434AA. An".
(6) In sub-paragraph (l) of paragraph 16 of Schedule 7 to the Finance Act 1991 (which makes transitional provision for annuities under contracts made in accounting periods beginning before 1st January 1992), for the words before paragraph (a) there shall be substituted—
(1) In the computation, otherwise than in accordance with the provisions applicable to Case I of Schedule D, of the profits for any accounting period of an insurance company's life assurance business, an amount equal to the lesser of the following amounts shall be treated (if it is not nil) as a sum disbursed as expenses of management of the company for that period, that is to say—".
(7) Subsections (1) and (4) to (6) above have effect in relation to accounting periods beginning after 5th March 1997.
(8) Subsections (2) and (3) above have effect in relation to accounting periods ending on or after 5th March 1997 but do not affect the computation of the capital elements contained in any annuity payments made before that date.'.—[Mr. Jack.]

Brought up, and read the First time.

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The Financial Secretary to the Treasury (Mr. Michael Jack): I beg to move, That the clause be read a Second time.

Madam Speaker: With this it will be convenient to discuss Government amendments Nos. 20 and 21.

Mr. Jack: It is important to give the House some reasons why the new clause has appeared at a relatively late stage. That happened simply because it was only literally in the past few weeks that the Inland Revenue discovered what was going on. Tax avoiders cannot expect some sort of close season during the passage of a Finance Bill when, having discovered their tricks, we will not act to stop them.
A sharp-eyed inspector of taxes worked out that something funny was going on after investigating parts of a banks tax affairs at which the company would not have expected him to look, and thereby discovered the basis of the new clause. His action clearly demonstrated the benefit of our "spend to save" initiative.
The trick that lies at the heart of the matter involves the bank buying a series of annuities from a life insurance company that are in theory to last for the life of bank employees in their 20s, but the pattern of payments is structured so that the capital paid is returned with interest within five years and after that a trivial amount is paid to keep the annuity going.
The tax rules on annuities have the result that nearly all the payment is classed as income, because annuities on the lives of younger people are deemed to consist mostly of income. If the person holding an oddly structured annuity of that sort were an individual, the effect of the rules would be to charge him to tax on far more income than was justified, so an individual annuitant would not take out such an annuity.
When a bank holds the annuity, because of the way in which it is taxed as a trader, it makes no difference to it what part of the annuity is treated under the tax rules as income, as the rules do not affect banks; but the insurance company gets relief for all the payments treated by the rules as income when in commercial reality they are a return of capital.
The new clause proposes that, when an annuity contract involves a substantial reduction in the amount of an annuity payment at any time, the annuity is treated for the tax purposes of the life insurance company as if it were two separate annuities, one short term with high payments and one long term with low payments. That will ensure that the life company gets relief for the income return inherent in the contract, but no more.
The new clause applies to payments made on or after 5 March 1997, when we announced the new measures. We thought long and hard before confining the measure to future payments. The House is rightly wary of retrospective legislation imposing a charge to tax on payments that have already been made, and we felt it right that in, for example, the leasing clauses, we applied the new rules only to payments made after Budget day; but, if companies continue to abuse the tax system in such blatant ways, I cannot say that we would never introduce

retrospective legislation in appropriate cases. This case is on the borderline, and I have given it the benefit of the doubt, but the message to tax avoiders is: beware.

Mr. Alan Milburn: I am grateful to the Minister for that explanation and for providing an earlier briefing on the matter. I add my congratulations to his sharp-eyed inspector of taxes on spotting the abuse.
As I understand it, the new clause is in essence intended to prevent an abuse which has recently developed whereby a life insurance company gets favourable tax treatment by using a financial trading company, such as a bank, as the recipient of front-end loaded annuity payments. The tax position of the financial trader, the bank, means that it is taxed only on the difference between the amount paid for the annuities and the amount received from them, rather than on the total income.
The insurance company gains by making large early payments on an annuity to reduce its overall tax liability. It treats the payments as income, even though they are in effect capital, as they involve the payment of the bulk of the value of the annuity. That is, in essence, the nature of the abuse. Both the bank and the insurance company gain from the device and the only loser is the Exchequer or the taxpayer.
Although new clause 8 seems to be a sensible measure, I have several questions. Can the Minister say how many companies are taking advantage of the arrangement? Am I right in thinking that one particular insurance company has been at the forefront of this avoidance scam? What does he estimate the losses to the Exchequer to have been? What is the potential loss? [Interruption.]

Madam Speaker: Order. More electronic devices. There is a ruling about that. Will the hon. Member for Sheffield, Attercliffe (Mr. Betts) remove both himself and the device until it has stopped?

Mr. Milburn: We seem to be having a problem with electronic devices.
What will the introduction of new clause 8 mean in terms of protection for the Exchequer? I have a question about the means that the Government have chosen to close off the abuse. It is being stopped, as I understand it, by two means—most notably, by deeming annuity payments to be management expenses of insurance companies rather than charges, as, historically and economically, they have always been regarded. Insurance companies have more flexibility in respect of what they can do with surplus charges than with excess management expenses. For example, where there are surplus charges in an insurance company's purchase annuity business, the loss can be surrendered against profits in another part of the group. Although I cannot think of an example off the top of my head of an innocent insurance company that could be adversely affected by new clause 8, theoretically there could be. What consideration did the Minister give to targeting the abuse more precisely rather than changing the overall basis on which annuities rank for tax relief in insurance companies?
We must take particular care in dealing with insurance, because the Minister knows as well as I do that the insurance industry is a key part of the UK's financial services sector, which contributes about 18 per cent. of our gross domestic product and employs hundreds of


thousands of people. It is an important sector of the economy, and has been successful in recent years, both domestically and internationally. When we take action that affects the sector, wherever possible we must ensure that we are helping, rather than hindering, the industry's efforts. I seek assurances on that point.
I also seek an assurance that new clause 8 will have no repercussions for the many members of the public who take out ordinary annuities. I appreciate that the device that new clause 8 seeks to close down is not one that ordinary individuals use, but it is important that the Minister takes the opportunity of giving an absolute assurance to people taking out ordinary annuities that they will not be affected. Ordinary policyholders should not suffer as a result of misbehaviour in an isolated part of the corporate sector.
In essence, we welcome the measure and the prior briefings that the Minister was able to afford us on the matter. I simply seek reassurances on the points that I raised.

Mr. Jack: I am grateful to the hon. Member for Darlington (Mr. Milburn) for the way in which he supported new clause 8. His support for the sharp-eyed revenue inspector will be warmly welcomed; I add mine.
The hon. Gentleman asked about the number of companies that we have identified. So far, one example has been found and the action proposed in new clause 8 will save up to £100 million in tax loss alone. We estimate that the tax loss at this moment probably amounts to about £20 million; but, if we had not taken action, some £1.5 billion in tax might have been at risk.

Mr. Milburn: The Minister says that one company was taking advantage of this tax avoidance scam. Does he know whether the industry at large was contemplating following that company's initiative?

Mr. Jack: In the course of investigating one company's set of books, the Inland Revenue discovered the problem. Obviously, the Revenue will look at other examples if they come to light; in any case, we acted quickly, and the new clause should be a deterrent to others that might seek to follow suit. I cannot guarantee that no other such attempts were in the pipeline at the time of the first discovery, but as we moved swiftly—within weeks of the discovery—to close the loophole, I hope that we have ring-fenced this anti-avoidance measure.
The hon. Gentleman went on to ask about the mechanisms involved in ensuring that the new clause will put a stop to this sort of tax avoidance. It is important to distinguish between the ring fencing, as a result of this work, of the losses in this area of life assurance, to prevent them from being used elsewhere in a company, and another more specific element. I hope that the hon. Gentleman has a copy of the notes on clauses—if he does not, I apologise. Paragraph 31 shows that the object of the proposal—to divide the annuity arrangement into two and effectively to increase the amount in repayment, to capital as opposed to income—is subtly to remove the beneficial effects of this type of activity in respect of the I minus E calculation. That calculation is at the heart of the way life assurance companies are taxed on their annuity business. How the avoidance is rendered unattractive is described in some detail in the notes on clauses.
The hon. Gentleman asked whether the innocent, at company or individual level, are protected. I can assure him that companies that are not seeking to contrive such arrangements will not, to the best of our knowledge, be affected. One of the difficulties of this sort of anti-avoidance work is that we cannot be certain how many people have attempted avoidance. In this case, we were lucky enough to have had a sharp-eyed inspector who spotted the problem, and we hope that the new clause will be a shot across the bows of anyone contemplating a variation on the theme. Nevertheless, I cannot guarantee that some who may look innocent but are actually up to their tricks will be caught by the measure. Still, the new clause, and the Opposition's strong support for it, will send out a powerful message.
The hon. Gentleman asked, finally, whether ordinary individuals with annuities will be affected in any way. The answer is no.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New clause 9

CONSORTIUM CLAIMS FOR GROUP RELIEF

'. In section 410 of the Taxes Act 1988 (group relief not available in certain cases including those where a person, either alone or with connected persons, controls 75% or more of the voting rights in a company owned by a consortium), in the definition of "connected persons" in subsection (5) after "in accordance with section 839" there shall be inserted "but as if subsection (7) of that section (persons acting together to control a company are connected) were omitted".'.—[Mr. Jack.]

Brought up, and read the First time.

Mr. Jack: I beg to move, That the clause be read a Second time.
I undertook to introduce the new clause in Committee in response to a new clause tabled by my hon. Friend the Member for Milton Keynes, South-West (Mr. Legg), to whom I am grateful for his assiduous efforts. The point that my hon. Friend and others have made to me concerned the genuine and potentially damaging uncertainty created among those considering whether to enter into joint ventures through consortium companies. Consortiums are an important and valuable business tool. That is reflected in the relief, similar to group relief, made available to certain consortiums. That relief must be protected by anti-avoidance rules.
The concern is that, following a Court of Appeal decision last year, one of those rules might deny relief solely because members of a consortium enter into a shareholders' or joint venture agreement as a normal part of their commercial activities. We have to take care here, because we are, after all, dealing with an anti-avoidance provision—which is why I could not accept my hon. Friend's new clause in Committee.
We have, however, found a way of removing the uncertainty from those entering these sorts of agreements without putting the Exchequer at additional risk. That is what the new clause does; I commend it to the House.

Mr. Barry Legg: I am grateful to my right hon. Friend the Minister for introducing new clause 9 to deal with potential problems in respect of consortium relief. The new clause will deal


with the concerns that I sought to address with the new clause that I tabled in Committee. His efforts will help a number of major consortiums and their shareholders to ensure that their funds are effectively and properly used.
I should be grateful if my right hon. Friend could offer some guidance in respect of the position of consortiums and their shareholders during 1996. I understand that the amendment to the legislation will be effective from Royal Assent. Can he tell me whether, following the decision in Steele v. EVC International NV, the Inland Revenue is likely to interpret the existing legislation in a way that would prejudice the 1996 consortium relief claims that might arise under the bona fide commercial arrangements which he has now put in place? Can he also assure me that this relief will be available in 1997 and in the future?

Mr. Milburn: This important new clause is intended to clarify the rules governing consortium relief. Again, I am grateful to the Minister for alerting us to the background to the issue, which was raised in Committee by the hon. Member for Milton Keynes, South-West (Mr. Legg), who tabled his own new clause. At the time, the Minister expressed concern about that new clause being potentially open to abuse, and he gave a commitment in Committee that he would come back with a Government new clause. He has honoured that commitment today.
The new clause seeks to clear up the tax rules on consortium relief following the May 1996 Court of Appeal decision in the case of Steele v. EVC International NV which, by providing a wide definition of connected persons, effectively restricted group relief. Understandably, the court's decision has given rise to some concern among commercial organisations that enter into joint venture agreements. It is clear that such agreements are increasingly becoming par for the course: one thinks particularly of the role of consortiums in relation to private finance initiative projects, and one would expect the influence of such consortiums to increase in future. That pooling by companies—sometimes of very different backgrounds—of expertise and resources is a sensible way of proceeding and reflects the trend whereby the modern company does not try to provide all services by itself, but instead contracts in, buys out, or works together with other like-minded companies on a specific project.
To date, the tax treatment has been to offer participating companies tax relief on losses from the consortium company in which they hold shares according to the proportion of their shareholding in the consortium company. That sort of arrangement is especially important in the context of long-term and major infrastructure projects, which may involve considerable initial investment and, therefore, early losses. The Court of Appeal decision seemed to say that, where there was a means of participating companies' governing the policy of the joint venture company, they would lose their right to tax relief because they could be defined as connected persons. Existing tax rules prohibit relief where certain types of arrangements are entered into: for example, where someone and others—connected persons—are acting together to obtain at least 75 per cent. of the votes in the joint venture or consortium company.
The hon. Member for Milton Keynes, South-West said in Committee that some people in the City were advising companies not to enter into joint venture agreements, given the Court of Appeal ruling and the subsequent advice issued by the Inland Revenue in December 1996. I do not know to what extent that is happening, but, obviously, erecting significant new obstacles to legitimate commercial activity is a matter of very serious concern. I believe that the Minister has recognised the concerns, and proposes by means of the new clause to remove the uncertainty by eliminating the acting together rules from the particular arrangements test in which they are to be used.
I should be grateful if the Minister would clarify some important points about the operation of new clause 9. What is the object of the clause, and what arrangements will be regarded as outside the new criteria for gaining tax relief? In what regard does he believe the existing rules have proved so deficient that they have deterred potential joint venture arrangements? Obviously, it would be a matter of concern if important projects had been deterred in any way because of the operation of the rule, especially in the light of the Court of Appeal decision and the subsequent Revenue guidance in December 1996.
How long have the Government been aware of the deficiencies in the current rules? Have they responded to specific representations that have been made during the few months since the Court of Appeal judgment and the issue of the Inland Revenue guidance?
Perhaps the Minister will answer two significant points on the new clause when he replies to this short debate. First, can he give us an idea of the cost of the measure in a full year—has the Revenue gauged the implications for the Exchequer? Secondly, will he give some assurances that the changes to group relief structures will not result in new abuses? If we close loopholes to encourage productive investment, it is important that taxpayers receive an assurance that their interests are properly looked after.

Mr. Jack: The hon. Gentleman has posed me six questions, but I hope that he will forgive me if I respond first to my hon. Friend the Member for Milton Keynes, South-West (Mr. Legg), who asked a specific question. The change will have effect from the date of Royal Assent, but the Inland Revenue will not seek to argue that a shareholder agreement might prevent consortium relief on the ground of acting together for any open case.
The hon. Member for Darlington (Mr. Milburn) asked about the object of the new clause. I hope that my introductory remarks, and my comments in Committee, have shown what it is about. The new clause resulted from uncertainty created by the Steele v. EVC International NV judgment; we have sought to end that uncertainty.
The hon. Member for Darlington asked about the existing rules. I have made it clear that we wished, not to undermine the existing avoidance rules, but merely to clarify the operation of consortium relief in exactly the terms that he has used.
The hon. Member for Darlington asked how long we had been aware of deficiencies in the current rules. Following the decision in the Steele v. EVC International NV case, we received representations about whether that


form of acting together conflicted with consortium relief, and that effectively gave rise to the uncertainty that the hon. Gentleman expressed.
The Inland Revenue issued its tax bulletin in December 1996 to try to reassure those who had doubts following the Steele v. EVC International NV court decision, but that alone was not enough to provide reassurance, although in our view the position was clear. Matters were brought to a head when my hon. Friend the Member for Milton Keynes, South-West proposed his own legislative solution, which we subsequently refined into the new clause.
I cannot answer questions about cost. We have merely clarified the use of an existing relief. We are not creating any new opportunities; instead, we are merely allowing that which would normally have carried on within the existing curtilage of the law. We are not creating new opportunities. We are merely clarifying the operation of the existing relief.
I was asked, finally, whether these changes occasioned the opportunity for new abuses. With respect, that was why we targeted the new clause precisely so as to ensure that we hung on to the proper anti-avoidance measures that are part and parcel of the arrangements that we are discussing, but without disrupting the proper use of the consortium reliefs to which the hon. Gentleman and my hon. Friend have rightly attested.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New clause 10

FUTURES AND OPTIONS: TRANSACTIONS WITH GUARANTEED RETURNS

'.—(1) After section 127 of the Taxes Act 1988 there shall be inserted the following section—

"Futures and options: transactions with guaranteed returns

127A. Schedule 5AA (which makes provision for the taxation of the profits and gains arising from transactions in futures and options that are designed to produce guaranteed returns) shall have effect."

(2) After Schedule 5 to that Act there shall be inserted, as Schedule 5AA to that Act, the Schedule set out in Schedule (Futures and options: taxation of guaranteed returns) to this Act.

(3) In section 128 of that Act (profits arising from commodity and financial futures etc. to be taxed only under the provisions relating to chargeable gains)—

(a) after the word "which", where it first occurs, there shall be inserted "is not chargeable to tax in accordance with Schedule 5AA and"; and
(b) for "that Schedule" there shall be substituted "Schedule D".

(4) In section 399 of that Act (withdrawal of loss relief for losses from dealing in futures etc.), after subsection (1) there shall be inserted the following subsection—
"(1A) Subsection (1) above does not apply to a loss arising from a transaction to which Schedule 5AA applies."

(5) In section 469(9) of that Act (sections 686 and 687 disapplied in relation to unauthorised unit trusts), at the end there shall inserted "except as respects income to which section 686 is treated as applying by virtue of paragraph 7 of Schedule 5AA."

(6) Subject to subsection (7) below, this section and Schedule (Futures and options: taxation of guaranteed returns) to this Act shall have effect, and be deemed to have had effect, for chargeable periods ending on or after 5th March 1997 in relation to profits and gains realised, and losses sustained, on or after that date.

(7) In relation to profits and gains realised, and losses sustained, on or after 5th March 1997, paragraph 1(6) and (7) of the Schedule 5AA to the Taxes Act 1988 (rule against double counting) inserted by this section shall be deemed to have had effect for chargeable periods beginning before that date (as well as for those beginning on or after that date).'.—[Mrs. Angela Knight.]

Brought up, and read the First time.

The Economic Secretary to the Treasury (Mrs. Angela Knight): I beg to move, That the clause be read a Second time.

Madam Speaker: With this it will be convenient to discuss Government new schedule 1—Futures and options: Taxation of guaranteed returns.

Mrs. Knight: The purpose of the new clause and the associated schedule is to counter an avoidance undertaken by the use of transactions in derivatives that produce a guaranteed return on investments.
The avoidance devices can take many forms, but essentially they turn income into capital gains. The background note to the explanatory note gives an example of an avoidance device that the new clause covers. It is called a "box spread", and it uses four options that are related to the FTSE 100 index. We first learned of the use of this avoidance device last summer. It was being used by an authorised unit trust. The Association of Unit Trusts and Investment Funds responded by suggesting that a change should be made to the accounting rules in the relevant statement of recommended practice—or SORP, for short—to prevent this abuse. We accepted the association's assurances.
Evidence has come to light, however, that the avoidance device was being used by others. For the moment, we shall keep faith with the unit trust industry's assurances that its SORP will be effective in countering any use of the device by authorised unit trusts. For others, the new clause will apply only where there is a scheme or an arrangement involving two or more transactions that is designed to produce a guaranteed return from the disposal of one or more futures or options, and only if that return is in substance similar to interest. It will apply from 5 March. I commend the new clause and associated schedule to the House.

Mr. Mike O'Brien: We welcome the new clause as it will close a loophole. We accept many of the points that the Economic Secretary has made. There remain, however, some questions, some of them technical and others that are broader. Perhaps I should start with the broad questions.
First, how much will be saved by the implementation of the new clause? Is there some concern that the Government may be faced with the development of further avoidance techniques? What steps are the Government taking to prevent the similar exploitation of the different tax treatments of various financial instruments? We wish to be reassured that the Government have an overall strategy and that we are not merely waiting for some clever tax specialist to find a new angle to exploit. We hope that the Government have a strategy, by the use of which they will get ahead of the tax avoidance industry and ensure that revenue is protected.
Given the importance of the City and of the financial instruments that concern us, what steps are the Government taking to ensure that bona fine business does not suffer as a result of the misbehaviour of some? Those are some of the broader questions that we wish to raise.
As the Economic Secretary says, the new clause is aimed at counteracting an avoidance device that effectively turns interest coming to capital gains into something that may be more favourably taxed. As the House will know, futures and options are financial instruments that are used by companies and individuals to manage risk, and increasingly financial risks. For example, a metal-bashing company in the midlands may purchase an option contract on the London metal exchange to protect itself against unfavourable price changes in key raw materials. UK tax law treats futures and options as capital assets when they are in the hands of taxpayers who are not financial traders—not banks and the like. Therefore, if the midlands company exercised or sold the contract and made a gain, it would be taxed as receiving a capital gain. Similarly, a loss on the contract would be taxed as a capital loss.
4.30 pm
The abuse occurs when a taxpayer—usually a cash-rich taxpaying company—purchases a specially constructed financial derivative in favour of a usually higher-yielding conventional deposit. Such arrangements may not be abusive if the financial derivative exposes the purchasing company to the usual risks inherent in such instruments. However, the Government are rightly seeking to prevent cases where the derivatives are structured to expose the purchaser to essentially the same risks of movements in interest rates as the purchaser would be exposed to simply by purchasing a conventional deposit.
The new clause is broadly welcomed. Its objectives are worthy, but let us examine some of the more technical aspects. The new legislation seems to overcome the mischief by applying a charge under case IV of schedule D to profits realised on or after 5 March 1997 from the futures or options concerned. Some have suggested that taxing under case IV of schedule D is strange. Should they not be deemed to be non-trading debits and credits arising from a loan relationship under the Finance Act 1996? Those are amounts that are axiomatically equivalent to interest by definition arising from contracts which, but for failures in definition, would have been non-trading items under the Finance Act 1994 financial instruments regime. The legislation applies just as much to hedged transactions that were entered into for purely commercial reasons, with no intention to secure a tax advantage, as to avoidance transactions.
If schedule 5AA generates a D IV gain, a trader can eliminate it, presumably, by a corresponding non-trading deficit. However, if schedule 5AA generates a D IV loss, which can hardly have been an effective tax avoidance transaction under the existing rules, a trader cannot use this and will probably have to do an artificial schedule 5AA transaction in order to use the D IV loss. One of our advisers suggested to me that—to use his words—that might be daft. Perhaps the Minister can reassure us that that is not the case, and that, although we have only just

moved derivatives out of D IV and into D III and non-trading deficits, this way of dealing with matters will work.
The next issue is not so technical and concerns unit trusts. As the Minister pointed out, it became apparent in the summer of 1996 that unit trusts were exploiting this form of arbitrage to market a product for investors. The close capital account was the main example. I have a news report which is effectively an advertisement for the close capital account launched by Close Fund Management. Although the purpose was apparently to announce plans to outlaw moves in relation to unit trusts, it seems that the present clause does not apply to unit trusts. However, as the Economic Secretary pointed out, the intention was to try to deal with the matter by way of a practice direction issued by the Investment Management Regulatory Organisation—IMRO.
We need further reassurances that the Minister is satisfied not just by the Association of Unit Trusts and Investment Funds agreeing to abide by the direction. Perhaps she could provide more substantial reassurance that although a decision was initially made to examine unit trusts, they have now been satisfactorily dealt with. Will the Minister assure us that, if problems arise with unit trusts, the Treasury will act very quickly—general elections notwithstanding? The Treasury must monitor the situation closely, and the revenue must be protected for the sake of AUTIF and everyone else.
I seek the Minister's reassurances regarding a more technical area. Will she confirm that the schedule is being dealt with? That is very important. I have several questions about paragraphs 4(4) and 4(5) of schedule 5AA. If the Minister cannot respond to my somewhat technical points now—I appreciate that it may take some time to answer them—perhaps she could reply in writing.
The grants of options are not disposables under schedule 5AA—notwithstanding that they are under the Taxation of Chargeable Gains Act 1992—so long as there is a later disposal of something else. Where an option is granted and not exercised, the grant of an option is taken to be a disposal only as and when a disposal takes place with respect to a related transaction—not necessarily one arising under the option contract. Will the Minister clarify precisely what those parts of the schedule mean?
I do not see the point of paragraph 4(3)(c), given the definition of an option in paragraph 4(6); nor how that alters the definition in section 144(8)(c), as it already excludes traded options. Schedule 5AA is arguably retrospective as it applies to contracts in existence on 5 March 1997. What does "significant extent" in paragraph 3(1)(a) mean? The Minister may need to respond in writing.

Mrs. Angela Knight: It is estimated that the new clause would save £50 million. However, as people talk to each other, there could be more costs to the Exchequer. That is why we have moved quickly to introduce this measure. Obviously, others might look to other types of derivatives apart from those covered by the new clause. I assure the hon. Gentleman that we shall keep a close eye on how matters develop. If it is necessary to change the legislation, we shall do so. Otherwise, we shall ensure that other sorts of transactions are challenged within the existing legislation.
The hon. Gentleman asked whether the legislation would catch all taxpayers, including those engaged in bona fide transactions. I assure him that, with the


exception of financial traders whose profits from such transactions will already be taxed as part of their normal case 1 trading profits, the legislation catches everyone. There are a few more exceptions: charitable trusts, pension funds and authorised unit trusts. Therefore, the hon. Gentleman can see that those who are engaged in legitimate transactions will be able to continue with those transactions.
The hon. Gentleman referred to a metal-bashing company and asked several questions in that regard. All the points relating to that company and others come under the general hedging heading. No commercial hedging will be caught: the legislation applies only where the guaranteed return arises from the futures or options used. I remind the hon. Gentleman that I said in my opening remarks that the clause applies only to a scheme or arrangement, involving two or more transactions, that is designed to produce a guaranteed return from the disposal of one or more futures or options if the return is similar to interest. I can put his mind at rest on that.
The hon. Gentleman asked a number of questions relating to case IV, but the taxable income will be calculated under case VI of schedule D.

Mr. Mike O'Brien: The Minister is quite right; it is case VI rather than case IV.

Mrs. Knight: I can assure the hon. Gentleman that taxable income will be calculated in accordance with the principles of case VI. That will usually mean the profit or loss—the difference between the acquisition cost and the disposal proceeds of the future or option. I think that I have answered most of his questions in that area.
We will keep faith with the unit trust industry's assurances that the statement of recommended practice for the authorised unit trusts will be effective in countering any use of the device by authorised unit trusts. However, we shall not hesitate to bring them within the scope of the new clause in future if there is evidence that individual authorised unit trust fund managers are trying to get around the spirit of the accounting rules. I can assure the hon. Gentleman that we will keep this matter under very close watch.
The hon. Gentleman had a list of technical points. A firm of solicitors raised the same points. Indeed, we received a letter from one today. I sincerely trust that it will engage in useful dialogue with the relevant officials, as those points need to be covered. That would probably be a better way to reach a conclusion on them, but if the hon. Gentleman insists, I will, of course, write to him.

Mr. O'Brien: I do not know which firm of solicitors, as I have had no contact with it. The points were raised by our advisers, and not any firm of solicitors, so perhaps the Minister will, out of courtesy, write to me.

Mrs. Knight: I will, of course, write to the hon. Gentleman. I suggest that his advisers go back to the solicitors, who no doubt informed his advisers in the first instance.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New clause 3

REGISTRATION OF PROFIT-RELATED PAY SCHEMES

'A profit-related pay scheme shall not be capable of being registered under Chapter III of Part V of the Income and Corporation Taxes Act 1988 (profit-related pay) unless:

(1) The scheme was registered before the Finance Act 1997 received Royal Assent; or
(2) The pay before deduction of tax of employees to whom the scheme relates does not change as a result or consequence of the scheme.'.— [Ms Primarolo.]

Brought up, and read the First time.

Ms Dawn Primarolo: I beg to move, That the clause be read a Second time.
It is important to outline to the House the intentions of profit-related pay, the problems that are emerging and how our amendment seeks to protect the taxpayer in the registration of such schemes.
We tabled the new clause to seek to deny tax relief to new profit-related pay schemes that simply convert taxable pay into non-taxable profit-related pay. Some 3.6 million employees in 12,740 schemes benefit from relief from income tax on profit-related pay. The Government propose to phase out the relief by 31 December 2000 by reducing the taxable income relieved each calendar year. Labour supports the principle behind the Government's proposals, but proposes, in our amendment, to improve the legislation by preventing employers from using the phased withdrawal of the scheme to register new schemes that subsidise pay at the taxpayers' expense.
It is essential to make it clear that, as a result of our new clause, any employee who currently benefits from a tax-favoured profit-related pay scheme will continue to do so, as the Government intend. Any employees who are members of newly registered bona fide schemes can enjoy the benefits until the Government withdraw them. We seek to deny employers the opportunity to use profit-related pay schemes to subsidise pre-tax pay.
It is necessary to remind the House why profit-related pay was introduced, so that I can properly illustrate how the abuses are taking place. The scheme was introduced in 1987 and enabled any employer out to make profits to pay employees up to 20 per cent. of salary, or £4,000, whichever is the lower, free of income tax subject to certain conditions. At least 80 per cent. of employees must be able to participate, and all participants must do so on similar terms. The main beneficiaries of profit-related pay are likely to be employees on lower incomes.
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In the 1983 Budget the then Chancellor of the Exchequer asserted that £100 million would be saved in 1994ߝ95 by closing a loophole in the profit-related pay rules that allowed companies to pay employees-up to £4,000 per annum free of income tax and commercial risk, contrary to the intention of the legislation. The loophole was closed, and employers are now unable to offer profit-related pay without some degree of risk that payments made under the profit-related pay regime may vary with "profits" as defined in the scheme. I shall return to that point. However, the Chancellor did not prevent employers from constructing schemes that expose employees to only a negligible risk of loss of earnings.
Effectively, 80 per cent. of employees must vote in favour of the scheme—again, I shall return to that point—so it is unlikely that the majority of employees will vote for a scheme with a material risk to them. The overwhelming majority of schemes can be expected to convert approximately 20 per cent. of guaranteed pay into almost risk-free but also tax-free profit-related pay. That reasoning is supported by survey evidence from the income data studies report of June 1996 on profit-related pay, which suggested that the major part of the £1,500 million cost to the taxpayer of profit-related pay is funding schemes that provide tax-free pay rises rather than performance-related pay.
The Government published a research report on profit-related pay in May 1995, commissioned by the Inland Revenue, the Department for Education and Employment and Her Majesty's Treasury. The report's main conclusions were that tax relief has stimulated significant additional take-up of profit-related pay—which is not surprising—and that the main benefits of the relief, from an employer's point of view, are tax efficiency and employee involvement. The report did not provide conclusive evidence that the cost to taxpayers of profit-related pay was justified by improved economic performance.
In Committee, we tabled an amendment, which was unsuccessful, requiring the Treasury to publish a report each year on what companies with profit-related pay schemes propose and how their schemes would work. Our amendment seeks to highlight and, I hope, close the loophole whereby companies can now use the four years before the scheme is phased out to introduce schemes that provide tax relief for the company.
I want to draw the House's attention to a scheme and to a publication that was given to employees entitled "Tax Free Pay—Your chance to get more take home pay." It was provided by a firm called SITA, which is a large, French-based, multinational, contract service company. It has won a number of local authority service contracts through the compulsory competitive tendering process. As a result of a trade sale, the company took over responsibility for engineering services, ground maintenance, street lighting and refuse collection in a number of authorities, including Bristol city council. It employs 600 staff in Bristol, and more nationally. The company presents itself as a quality employer.
Last year, the company told its employees that it was unable to give them an annual pay award. Suddenly SITA announced that, instead of a pay award, it could offer staff the benefits of a so-called tax-free pay scheme, which is a national scheme. The booklet to promote the scheme was circulated in January 1997. The company says:
We have designed the Scheme to maximise the tax relief you can receive"—
"you" being the employee in the company. It says that the scheme is designed to share the benefits between the employee and the company. There is no mention in this publicity material of the principles and objectives of profit-related pay: no mention of encouraging closer working relationships between employees and the company; no mention of improving relationships between the company and its employees; and no mention of giving employees a stake in their company.
Risk does not feature in this publication either. The element of the entitlement that relates to the company's performance is simply described as "a bonus" to be paid later. So much for employees' involvement in the rough and tumble of the marketplace. The scheme is clearly a mechanism for exploiting the tax loophole. Worse still, the company originally tried to use the scheme as a substitute for an annual pay rise. Instead of profit-related pay being used to generate staff involvement in and commitment to a company and its affairs, the scheme is being used to give staff a pay rise funded by the state.
The company is quite open about this scheme. Apparently, a representative who spoke to the staff outlined the scheme and said, "Why should we fund the pay award when the Government will pay for it." Talk about making an offer that cannot be refused! The scheme requires that 80 per cent. of the staff must vote for it: that is an interesting concept. The company is so keen to achieve 80 per cent. support that, under the section entitled "What do I do next?", it says:
If you want to accept this opportunity to increase your take-home pay through TFP, do nothing-you will automatically be included.
That is a new and interesting concept in balloting. The booklet goes on to say:
If you do not wish to participate, please telephone and request an opt out form from the Group Personnel Manager's office".
It may, of course, be a P45. Employees should certainly consider whether non-participation would damage their chances of promotion in the company. I am sure that plenty of SITA's employees will think that if they question the scheme they will not have a future. What has happened to the concept of a secret ballot, which is supposed to be a provision of the scheme?
The SITA scheme is merely one example of a number of schemes that are being established all over the country. The Government have scored a double whammy: first, the incompetence of creating a massive tax loophole, and then the incompetence of not closing it properly so that it continues to be exploited. The true extent of late applications to the Treasury for such schemes has been revealed in written answers to my hon. Friend the Member for Rotherham (Mr. MacShane). In the two months from 1 December 1996, 3,800 applications were made.
Putting it politely, I believe that there is clearly a problem. It is obvious from scrutinising the material sent to employees that the intention of the scheme is to take advantage of the tax loophole—the scheme has been set up for one year only, because the company presumably thinks that it can renegotiate it next year. I cannot believe that it is beyond the wit of the excellent brains in Her Majesty's Treasury to find a way of ensuring that bona fide schemes are protected and agreed and that such abuses are prevented.

Mr. Jack: I have listened carefully to the hon. Lady. She envisages that the new clause would maintain the existing registration mechanisms for schemes but would rule out a certain type of scheme. If the existing registration mechanism is to be maintained, how would the schemes to which she has referred be ruled out? The new clause is deficient in that detail. Could she supply it?

Ms Primarolo: With respect, the Financial Secretary could make that point when he responds to the debate. Frankly, if we were in government, I am sure that we


would find a way. The principle in the new clause is clear, so surely to goodness the Government can find a mechanism to achieve it.

Mr. Denis MacShane: I support the new clause, which my hon. Friend the Member for Bristol, South (Ms Primarolo) moved in a moderate and ministerial way. I shall be interested to hear how on earth the Minister manages to justify what is, by any honest examination, ministerial incompetence. The profit-related pay blunder, which my hon. Friend has examined in some detail, was identified as such in previous statements by the Chancellor. This is not a new discovery or the result of earnest research by the Labour party. It has been a matter of concern to Chancellors and to the Treasury, as shown by speeches reported in Hansard.
Having discovered the loophole, the Government have made no effort to close it. The new clause is the first concrete proposal to save the taxpayer what is potentially a serious loss of revenue, and to signal to companies that are rushing to take advantage of that tax loophole that the game is up.
The paradox is that, although the Budget is meant to be formulated in conditions of confidentiality and secrecy—the so-called purdah into which the Chancellor and his Ministers and officials must disappear until the Budget statement—the intention to remove profit-related pay from our fiscal regime was heavily flagged up a full two months before that statement. In mid-September, the business pages of every newspaper carried detailed reports suggesting that the elimination of PRP from the system was a racing certainty. As a result, there was a rush of firms seeking to register for PRP schemes between September and November, when the Budget statement was made.
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Following that, we all waited—or, at least, Opposition Members waited—for the Chancellor to announce that, with effect from his Budget statement or perhaps a week or two thereafter, as is the norm when such loopholes are closed, no more schemes would be accepted for registration, or, at best, the loophole would be closed once the Finance Bill became law. In fact, the opposite happened. Massive publicity was directed at firms, suggesting that here was a wonderful tax avoidance dodge, and that, although it was going to be phased out, any company that chose to register a scheme could do so in the meantime.
My hon. Friend the Member for Bristol, South mentioned a company in Bristol. I know of companies in the engineering and metal-bashing sphere—as one whose constituency contains Britain's, indeed Europe's, largest engineering steel plant, I have nothing but respect for the craft and industry of metal bashing, steel making and engineering generally—that have been rushing to set up PRP schemes. They have offered their employees an absolute guarantee of no loss of income, thus invalidating the very principle—a sensible principle—that underlies all profit-related pay: the idea that those who make that extra effort and put in that extra commitment will cause the company's profits to increase, and will be paid more as a result.
I do not know what package is described in the fancy words of accountants in letters to the Treasury, but, on the ground, employees being offered such schemes are

being told that there is no way in which they will suffer any reduction in pay. Instead, they are told, they will pay less tax. As my hon. Friend the Member for Bristol, South pointed out, the clear implication is that they can moderate their pay demands, because they will gain the advantage of the tax break that the Chancellor will be able to offer for a number of years.
The very concept of profit-related pay has been nullified by the schemes that are being set up. They amount simply to a subsidy by the taxpayer to firms whose accountants and finance directors were able to read the business pages in September, and to follow the Budget speech. The Government waved an immense flag in front of their noses, saying, "Here is a way in which you can cut your company's overall tax burden."
The answers given to my parliamentary questions, which my hon. Friend mentioned, show that, between September, when the first massive publicity about the phasing out of PRP was leaked to the press—the breaking of the purdah—and the end of January 1997, the Treasury received 7,500 applications to register schemes, more than in the full 12 months of 1994. I do not have the figures for last month. The tax relief given since the Chancellor first said, through leaks to the press, that he was intending to take PRP out of our fiscal system amounts to £1.1 billion, more than the £1 billion in revenue forgone throughout 1995.
In the five months from the first Treasury-inspired publicity about phasing out PRP, through the Budget, to the end of January, schemes have been registered which the Treasury estimates will cost the Inland Revenue £1.1 billion. That money, which the Chancellor has lost through his incompetence, could be used to build 15 medium hospitals or 70 new schools with 1,000 pupils, to employ 60,000 new teachers or to put 30,000 extra police officers on the beat.
Opposition Members are concerned not just about the overall ideology of the fiscal regime as practised by the Government in the past five years, but about the incompetent handling of important technical issues. It is complete and utter nonsense to announce that a scheme is to be phased out, when that announcement is followed by a tidal wave of people rushing to join the scheme in order to profit from it, with a consequent massive loss of revenue to the Treasury in ensuing years. That is the point of the new clause to which my hon. Friend the Member for Bristol, South spoke so ably.
This is the real saga of the black hole. We know about the various other black holes—losses of revenue owing to serial ministerial incompetence in recent years—but this is the cherry on the icing of the black hole cake, if I may mix my metaphors. Conservative Members laugh at that, but I can tell them that constituents of mine in Rotherham who have been invited to join the Gadarene rush to help their firms to reduce their overall tax burden would much prefer a new hospital or a few more bobbies on the beat.
I do not know whether the Financial Secretary has seen the recent interesting report from Lloyds bank, which examines in broad terms the whole way in which Ministers managed to render the economy so unstable between 1980 and 1986. The bank's economists have drawn up headings for output, inflation, interest rates and exchange rates across the Organisation for Economic Co-operation and Development. The United Kingdom, as governed by Treasury Ministers, lies at the bottom of


nearly all the stability indices. That issue of stability—which means people knowing what their regime will be for tax planning, pay planning and personal savings planning—is essential, but it has been denied to those people by the recent incompetence of Ministers.
The Financial Secretary is an honest and an honourable man, with whom we enjoy engaging in debate. I hope that he will take this final chance to apologise, on behalf of the Chancellor, for this last example of Government incompetence. I believe that the Chancellor is in Beijing, giving weird interviews about statements that he made to a conference of grocers; I do not know whether the right hon. Member for Old Bexley and Sidcup (Sir E. Heath) is with him to discuss the problems of the grocery trade. I hope that he will apologise for this last £1.1 billion that the Chancellor has managed to lose the Treasury since September last year, and apologise to the British people for the lack of the hospitals and schools that they could have had, the teachers who could have been in those schools and the bobbies who could have been on the beat. All that has been denied them because of the mishandling of the scheme—the profit-related pay fiasco.
I urge hon. Members on both sides of the House, irrespective of party allegiance, to vote for the new clause, to give the new Government a fresh start to close this loophole and to ensure that such tax fiddles never again disgrace Conservative Members.

Mr. Stephen Timms: As Labour Members have said, it is absolutely clear that, since the Budget announcement and the suspicion leading up to the Budget, there has been a stampede into profit-related pay to take advantage of it in its closing years. I pay tribute to my hon. Friend the Member for Rotherham (Mr. MacShane) for extracting from the Minister the information that he has referred to, which puts the scale of the problem into context.
What has emerged is that, in the past few years, the growth in the use of the PRP scheme has been almost exponential. The cost to the Treasury of the schemes registered in 1994 is expected to be just over £0.5 billion, in 1995, £1 billion and in 1996 nearly £1.7 billion. As my hon. Friend has said, in the five months from September to January alone, the cost is more than £1 billion. He also said that there were about 7,000 new applications in that period. According to Inland Revenue statistics, there were only 12,740 schemes at the end of 1996, so there has been a huge increase just in the past few months.
The new clause that was moved by my hon. Friend the Member for Bristol, South (Ms Primarolo) ensures, first, that any employee currently in a PRP scheme that has been successfully registered and is tax favoured will continue to benefit from that scheme and, secondly, that employees in bona fide new schemes will be able to enjoy the benefits, until the Government phase those schemes out. However, we surely need to prevent, as the new clause proposes, employers from using the scheme simply to cut their pay bill by cutting income tax payments, with little or no benefit to employees.
PRP loopholes have already been closed. The Chancellor moved to close the most glaring loophole in 1993, when he ensured that it was no longer possible to have PRP schemes that were entirely risk free—that is,

where the profit-related element of the pay bore no relation at all to the profits that were being earned by the firm. Thankfully, that loophole was closed, but the evidence now is that most of the cost of the scheme—possibly the great part of the cost—in forgone tax is related to schemes that are almost risk free. It is no longer possible to have an entirely risk-free scheme, but it is still possible to have schemes that are almost risk free, where the link between the company profits and the level of pay received by the employees is extremely slender, so that the scheme is, in reality, a method just of avoiding tax on regular salary payments.

Mr. MacShane: Is my hon. Friend aware that, in all the profit-related pay schemes set up in the past few months, employers are saying to both trade unions and employees that their salary is not at risk? Therefore, whatever the Treasury may suggest, in the real world, about which Ministers know nothing, people are being told that there is absolutely no risk of any reduction in monthly pay.

Mr. Timms: I am grateful to my hon. Friend because that underlines the point that we have a flagrant abuse of the rules with this scheme.
I understand that it is widely the case—my hon. Friend the Member for Bristol, South mentioned an example of this in Bristol—that, where employees in a firm anticipate that they will have a 2 per cent. pay rise, the employer says that he will give them a 3 per cent. pay rise if 80 per cent. of the employees accept his proposal, but then he does not increase his pay bill at all; he simply introduces an element of PRP into the existing pay arrangements. By so doing, he is able to increase the employees' take-home pay by 3 per cent.
I understand that it is possible to construct a scheme where more than 90 per cent. of the supposedly profit-related element of the pay is guaranteed—the point that my hon. Friend the Member for Rotherham has just made. For example, in schemes that make 12 monthly payments to employees, only the 13th payment is profit related.

Mr. Jack: I have listened carefully to what the hon. Gentleman has said. Given that the new clause maintains the existing registration scheme for profit-related schemes, how in detail would the new clause that he is advocating deal with the point that he has outlined?

Mr. Timms: I am not entirely clear what the Minister's difficulty is because our new clause makes it clear that it would exclude from registration a number of schemes for which application was being made, unless

The pay before deduction of tax of employees to whom the scheme relates does not change as a result or consequence of the scheme.

Mr. Jack: rose—

Mr. Timms: Perhaps the Minister wants to say something more about what the difficulty is.

Mr. Jack: The question I asked is: given the existing criteria for registering schemes, will the hon. Gentleman tell me in detail how the new clause achieves the


objective, which he has just described with some clarity, within the terms of the existing registration scheme? Will he please give me the detail of the legislative route through?

Mr. Timms: Clearly, there is a difficulty that the Minister grasps which I do not. The new clause seems to me to be clear: schemes of the sort that I am describing could not be registered. If that is not so, the Minister will no doubt explain that and perhaps he can propose a form of words that would do the trick, but I hope that he is perhaps showing by his interventions that there is a serious problem and that a loophole needs to be closed. I know that my hon. Friend the Member for Bristol, South would be delighted if the Minister proposed a form of words that dealt with the difficulty that is clearly in his mind, although it is not apparent as yet to us.
A number of schemes of this nature are being brought forward where perhaps 12 monthly payments are fixed and only the 13th payment is profit related, so the overwhelming bulk of what is supposed to be a profit related element of the employees' pay is not in any way profit related.
The Treasury press release from November states:
PRP is that part of pay which varies with changes in the profits of the business in which the employee works.
However, in these schemes, the majority of which are being registered now, the degree of change with profits is extremely small and the schemes are primarily a device for avoiding tax. They certainly do not introduce the sort of incentive that all of us understand and support.

Mr. Tim Smith: There is an important difference between a variation that is extremely small and no variation at all. The new clause refers to a situation in which there is no variation at all, so I do not understand what it would add to the existing arrangement because, to qualify for a PRP scheme, people had to have some element of pay that varied in accordance with movements in profits.

Mr. Timms: The problem is that, as I have mentioned, in some schemes, the 13th payment is predictable; there are 12 fixed monthly payments and only the 13th payment varies very marginally. Those schemes comply with the existing Treasury requirements for registration. We are seeking to change the rules so that they would not. If there is a difficulty in the form of words that appears on the amendment paper, the Minister will no doubt draw that to our attention and perhaps he or the hon. Member for Beaconsfield (Mr. Smith) will suggest a form of words that will deal with the difficulty. I would hope that there is agreement across the Floor of the House that there is a loophole that needs to be blocked.
The issue raises a basic question of morality. It is certain that there is no significant performance-related element in the great bulk of schemes that are being registered in the current rush. They are a one-way bet for employers. It is very hard for employers to resist such a temptation. A device is available—advertised by all the publicity surrounding the Budget—by which employers can reduce their tax bill without adversely affecting their employees. Employers are in turn putting out leaflets of the sort that we have heard read out in the debate to encourage employees to take part in what is in fact a scam.
As the poll tax created a personal tax avoidance culture, from which we are only recovering many years later, such schemes are encouraging employers and employees to become part of an income tax avoidance culture. All Opposition Members and I are anxious—I would have thought that Conservative Members would be anxious too—to ensure that that loophole is blocked. If there is an alternative way in which to do that, we would be delighted to hear about it. It is important to ensure that the loophole is blocked and that many more thousands of schemes do not come into effect with all the adverse consequences that I have described.

Mr. Paddy Tipping: The important new clause deals with an interesting aspect of social and fiscal policy. I share a constituency boundary with the Chancellor and I share some of his views on profit-related pay, but the action that he proposed in the Budget, which the Bill would enact, is not sufficient. The new clause strengthens and improves that action.
It is important that hon. Members remember that in his Budget statement the Chancellor said that he believed that
employees' rewards should depend on the success of the business for which they work.
He added that he had
argued publicly for many years, that in a modern enterprise economy people's pay should be closely linked to the performance of the business for which they work."—[Official Report, 26 November 1996; Vol. 286, c. 165.]
That must be right. Employees must have a say and a stakeholding in their company; they must be able to share the benefits and profits. Conversely, they must share the risks. The present system, although right in principle, is badly conceived and has been a one-way bet for many years.
It is important to remind ourselves that the scheme dates back to a Green Paper in 1986, in which Nigel Lawson said:
There is considerable inertia to overcome, so it might make sense to offer some temporary measure of tax relief.
It is important to emphasise the phrase "temporary measure". The experiment has been running for almost 11 years. It is suggested that it has cost the Exchequer £4 billion. Inland Revenue statistics suggest that it will cost £1.5 billion in 1996–97, although a recent written answer from which some of my hon. Friends have quoted suggests that it could cost £1.7 billion.
The figure of £1.7 billion is significant because it is almost the amount that would be raised by increasing the rate of income tax by 1p. Although 3.6 million people benefit from 12,740 profit-related pay schemes, it is important to recognise—the Chancellor recognised it in his Budget statement and I know that the Financial Secretary recognises it too—that 22 million other taxpayers could benefit by using that £1.7 billion to take 1p off income tax. We know that we face hard choices at the moment—priorities have to be judged and decisions made. I suspect that the wrong decision has been made, and I am pleased that the Government propose to stop the experiment—the tax loophole—by 2000.
We have had plenty of time to discuss the issue. It was discussed at length in a Committee of the whole House on 22 January. I am pleased that the Financial Secretary appears to be taking a genuine interest in the amendment. He has asked probing questions. It is a pity that he did


not show such interest in the debate in January, when his winding-up speech occupied less than a third of a column in Hansard,which could be described as minimal. He said that he saw nothing to commend the amendment. I am delighted that, over the past few months, he has taken a genuine interest in the issue. I hope that he has looked closely at our amendment. It may not be perfect, but as he has had months to look at it, perhaps he could do better.

Mr. Jack: As the hon. Gentleman says, I have been looking carefully at the amendment. Using the registration criteria for profit-related pay and the terms of the Opposition's amendment—it is, in fact, a new clause; I should not want to downgrade it to an amendment—will he say how, in reality, the scheme would work?

Mr. Tipping: That is the comment of a genuinely inquiring Minister. He has had since January to consider the issue. He has had the benefit of knowing the terms of the new clause—I am grateful for his correction—for a little time. If he is not satisfied with it, he at least knows its spirit: that the risk, the downside of profit-related pay, should be shared as well as the upside. I am sorry that he finds the new clause difficult; it is very straightforward. In essence, it proposes that current members of the scheme would not lose out until 2000 and that only genuine, bona fide schemes will in future qualify.
I want to draw the Financial Secretary's attention to good schemes and bad schemes—especially to one that is about to be introduced at Nottingham university. In the past, Nottingham university has been viewed as being in the public sector. It has now decided that it is in the private sector. It has corporate status and is to introduce a profit-related scheme. I would call the scheme not a profit-related scheme but a salary-conversion scheme.
The accountancy firm, Ernst and Young, which has looked at the issue, suggests that 75 per cent. of all profit-related schemes are salary-conversion schemes. Staff at Nottingham university—I am delighted that the Chancellor, who received an honorary degree from Nottingham university some time ago, is in his place—were told that the scheme was a no-risk scheme; that if 80 per cent. of them voted for it, it would be pound notes all the way; and that there was no element of risk.
I still find it difficult to understand conceptually how a university can make a profit. Moreover, many of the staff at the university are anxious about the notion of profit-related pay at a university. They recognise it for what it is—a tax avoidance scheme—and know that the most significant part of their income comes from the public purse. They are avoiding tax and are not paying it to the Exchequer. Simultaneously, however, university and student funding comes from the Exchequer. It is bizarre.
I should like to contrast that scheme with another in the Nottingham area that has been operated for many years by a well-known manufacturer of net curtains, Phillip A. Minsen. The significant difference between the two schemes is that employees of Phillip A. Minsen share all the company's risks and are real stakeholders. They share the profit, if there is one, but they also share the downside. New clause 3 is important because it tries to distinguish

between proper and well-meaning profit-related schemes and those that can be described only as scams.
5.30 pm
New clause 3 would end the element of tax avoidance. My hon. Friends have already mentioned the increase in the number of schemes that people are attempting to establish by 2000. I support the new clause because it would improve the Bill. I hope that we shall have an opportunity to make more progress on the subject in the debate.

Mr. Tim Smith: Having listened to the debate, I conclude that new clause 3 would be ineffective and that it is misdirected. The Government have become a victim of their own success. Tax relief on profit-related pay was introduced in 1987 and was generally welcomed. A chart in the Red Book shows how the cost of relief has risen substantially over the past few years, especially since 1991, when it was doubled. This year, it is estimated that it will cost £1,500 million. Therefore, one could reasonably say that the relief has achieved its objective, and that it would be sensible to phase it out.
I have no knowledge of the figures produced by the hon. Member for Rotherham (Mr. MacShane) and I certainly do not dispute them. Companies may have been attempting to take advantage of the relief although it is to be phased out, and that issue should be addressed, but if the Opposition are as concerned as they claim, they should have drafted a more effective new clause. Surely it would have been more sensible to say that no new schemes will be registered as from today. Why not? If the relief has achieved its objective, why not say, "We'll finish the existing schemes, but no new schemes will be admitted"?
The difficulty with the Opposition's new clause is that it is unintelligible and would achieve nothing. It states:
The pay before deduction of tax of employees to whom the scheme relates does not change as a result or consequence of the scheme.
As I understand it, however, to qualify initially as a profit-related pay scheme, a part of one's pay must be variable in relation to the profits of the organisation for which one works. As the hon. Member for Bristol, South (Ms Primarolo) and other Opposition Members said, only a small proportion of someone's pay may vary, but I do not believe that a scheme would be approved if no part their pay varied although the employing enterprise's profits fluctuated. Therefore, new clause 3 would achieve little or nothing.
New clause 3 does not go far enough and is rather feeble.

Mr. MacShane: Is not subsection (1) the key part of the new clause? If the new clause is agreed, we will, de facto, be announcing a winding-up of profit-related pay schemes. Lawyers and accountants have made fun of interpretations of subsection (2), but that is a matter for experts and the Revenue and, ultimately, for the courts. We face that problem with all complicated amendments to tax law. However, the thrust of the new clause is quite clear: it is politely to say that no one wants such schemes any more and that it is time to say goodbye to existing


schemes. There is no problem with existing schemes—they can continue and no one will face any problems with them—but new ones will not be allowed. Surely the hon. Gentleman should be urging the Minister, in the interests of sensible tax raising, to accept this important new clause.

Mr. Smith: It is not the Minister's new clause. It has been tabled by the Opposition, and we are entitled to ask a few questions about its implications. The hon. Gentleman seems to be shifting his ground and saying that we should place more emphasis on subsection (1), but that is what I have been saying. Why not stick to the first condition and drop the second? Subsection (2) does not make sense. It is no good merely saying that we want to outlaw schemes that are not bona fide and keep those that are. We must draft legislation that achieves the objective, but I do not think that that can be done in one sentence. I certainly do not think that new clause 3 achieves that objective, and that is why I think that it should be thrown out.

Mr. Jack: I have listened assiduously to the debate. The hon. Member for Rotherham (Mr. MacShane) accused Conservative Members of incompetence, but this is an incompetent new clause. No Opposition Member could answer my question about how the second condition would work. The hon. Member for Bristol, South (Ms Primarolo) shakes her head. I shall give way to her if she can tell me how it would work within the terms of the existing registration scheme. Clearly she cannot do so. She asks the House to approve a new clause that, essentially, will not work.
I caution the hon. Member for Bristol, South that the Opposition have not thought through the full implications of their proposal. She said that in principle Labour supports the Government on phasing out profit-related pay. I assume, therefore, that she supports the argument advanced in the Budget debate by my right hon. and learned Friend the Chancellor, whom I am delighted to see in the Chamber, when he said that he wants an orderly withdrawal of profit-related pay so that companies can adjust their affairs as tax relief is withdrawn. New clause 3, however, would cause a disorderly withdrawal of relief. The Opposition cannot have it both ways.

Ms Primarolo: indicated dissent.

Mr. Jack: The hon. Lady shakes her head. It is her new clause—let her tell me that I am wrong. Under the new clause, no more profit-related pay schemes could be registered for tax relief after the Bill received Royal Assent. That would eliminate 50 per cent. of profit-related schemes, some of which may be entirely virtuous, according to the Opposition's definition.
How will the Opposition explain their proposal to the 36,000 employees of the John Lewis Partnership—an organisation that was prayed in aid by the Opposition as operating a good scheme? Some Opposition Members did not want such schemes to be affected. How will they explain why such employees will be unable to continue

their profit-related pay scheme and take advantage of phased withdrawal of tax relief? Other companies are in a similar position.

Mr. MacShane: rose—

Mr. Jack: I do not want you to blunder into this and have to face the slings and arrows of outrageous fortune in the form of—

Mr. Deputy Speaker (Mr. Michael Morris): Order. All Members in the Chamber are hon. Members, not "you" or "I".

Mr. Jack: I apologise.
Whitbread, with 67,000 employees, Safeway with 60,000, Barclays with 62,000 and many other companies that I could name have annual registration for schemes that the Opposition would call virtuous but that the new clause would eliminate. The House should not be invited to support the new clause.
As for the second condition in the new clause, the registration requirements simply identify the business unit effect, the number of employees, the size of the profit-related pool, how long the scheme would last, the total of profit-related pay that would be required and the upper limit of the profit pool. The new clause would not comply with those requirements; it would not work. It would mean that no more profit-related pay schemes could be registered for tax relief. No serious operator would propose such a measure while claiming to agree with the Government's approach on phasing out profit-related pay. If the new clause is pushed to a vote, I invite the House to throw it out.

Question put, That the clause be read a Second time:—

The House divided: Ayes 264, Noes 296.

Division No. 91]
[5.41 pm


AYES


Abbott, Ms Diane
Brown, Rt Hon Gordon


Ainger, Nick
(Dunfermline E)


Ainsworth, Robert (Cov'tryNE)
Brown, Nicholas (Newcastle E)


Allen, Graham
Burden, Richard


Anderson, Donald (Swansea E)
Byers, Stephen


Anderson, Ms Janet (Ros'dale)
Caborn, Richard


Armstrong, Ms Hilary
Campbell, Mrs Anne (C'bridge)


Ashton, Joseph
Campbell, Menzies (Fife NE)


Austin—Walker, John
Campbell, Ronnie (Blyth V)


Banks, Tony (Newham NW)
Campbell—Savours, D N


Barnes, Harry
Canavan, Dennis


Barron, Kevin
Cann, Jamie


Battle, John
Carlile, Alex (Montgomery)


Bayley, Hugh
Chapman, Ben (Wirral S)


Beckett, Rt Hon Mrs Margaret
Chisholm, Malcolm


Beith, Rt Hon A J
Clapham, Michael 


Bell, Stuart
Clark, Dr David (S Shields)


Benn, Rt Hon Tony
Clarke, Eric (Midlothian)


Bennett, Andrew F
Clarke, Tom (Monklands W)


Benton, Joe
Clelland, David


Bermingham, Gerald 
Clwyd, Mrs Ann


Berry, Roger
Coffey, Ms Ann


Betts, Clive
Cohen, Harry


Blair, Rt Hon Tony
Connarty, Michael


Blunkett, David
Cook, Frank (Stockton N)


Boateng, Paul
Corbett, Robin


Bradley, Keith
Corbyn, Jeremy


Bray, Dr Jeremy
Corston, Ms Jean






Cousins, Jim
Jamieson, David


Cunliffe, Lawrence
Jenkins, Brian D (SE Staffs)


Cunningham, Jim (Cov'try SE)
Johnston, Sir Russell


Cunningham, Rt Hon Dr John
Jones, Barry (Alyn & D'side)


Cunningham, Ms Roseanna
Jones, leuan Wyn (Ynys Môn)


(Perth Kinross)
Jones, Jon Owen (Cardiff C)


Dafis, Cynog
Jones, Dr Lynne


Dalyell, Tam
(B'ham Selly Oak)


Darling, Alistair
Jones, Martyn (Clwyd SW)


Davidson, Ian
Jones, Nigel (Cheltenham)


Davies, Chris (Littleborough)
Jowell, Ms Tessa


Davies, Rt Hon Denzil (Llanelli)
Keen, Alan


Davies, Ron (Caerphilly)
Kennedy, Charles (Ross C & S)


Davis, Terry (B'ham Hodge H)
Kennedy, Mrs Jane (Broadgreen)


Denham, John
Kilfoyle, Peter


Dewar, Rt Hon Donald
Kirkwood, Archy


Dixon, Rt Hon Don
Lestor, Miss Joan (Eccles)


Dobson, Frank
Lewis, Terry


Donohoe, Brian H
Liddell, Mrs Helen


Dowd, Jim
Litherland, Robert


Eagle, Ms Angela
Livingstone, Ken


Eastham, Ken
Lloyd, Tony (Stretf'd)


Ennis, Jeff
Llwyd, Elfyn


Etherington, Bill
Lynne, Ms Liz


Evans, John (St Helens N)
McAllion, John


Ewing, Mrs Margaret
McAvoy, Thomas


Faulds, Andrew
McCartney, Ian (Makerf'ld)


Field, Frank (Birkenhead)
Macdonald, Calum


Fisher, Mark
McFall, John


Flynn, Paul
McGrady, Eddie


Foster, Rt Hon Derek
McKelvey, William


Foulkes, George
Mackinlay, Andrew


Fraser, John
McLeish, Henry


Fyfe, Mrs Maria
Maclennan, Robert


Gapes, Mike
McNamara, Kevin


Garrett, John
MacShane, Denis


George, Bruce
Maddock, Mrs Diana


Gerrard, Neil
Mahon, Mrs Alice


Gilbert, Rt Hon Dr John
Mallon, Seamus


Godman, Dr Norman A
Mandelson, Peter


Golding, Mrs Llin
Marek, Dr John


Graham, Thomas
Marshall, David (Shettleston)


Grant, Bernie (Tottenham)
Marshall, Jim (Leicester S)


Griffiths, Nigel (Edinburgh S)
Martin, Michael J (Springburn)


Griffiths, Win (Bridgend)
Martlew, Eric


Grocott, Bruce
Meacher, Michael


Gunnell, John
Meale, Alan


Hain, Peter
Michael, Alun


Hall, Mike
Michie, Bill (Shef'ld Heeley)


Hanson, David
Milburn, Alan


Hardy, Peter
Miller, Andrew


Harman, Ms Harriet
Mitchell, Austin (Gt Grimsby)


Harvey, Nick
Moonie, Dr Lewis


Hattersley, Rt Hon Roy
Morgan, Rhodri


Henderson, Doug
Morley, Elliot


Hendron, Dr Joe
Morris, Rt Hon Alfred (Wy'nshawe)


Heppell, John
Morris, Ms Estelle (B'ham Yardley)


Hill, Keith (Streatham)
Morris, Rt Hon John (Aberavon)


Hinchliffe, David
Mudie, George


Hodge, Ms Margaret
Mullin, Chris


Hoey, Kate
Murphy, Paul


Hogg, Norman (Cumbernauld)
Nicholson, Miss Emma (W Devon)


Home Robertson, John
Oakes, Rt Hon Gordon


Hood, Jimmy
O'Brien, Mike (N Warks)


Hoon, Geoffrey
O'Hara, Edward


Howells, Dr Kim
Olner, Bill


Hoyle, Doug
O'Neill, Martin


Hughes, Kevin (Doncaster N)
Orme, Rt Hon Stanley


Hughes, Robert (Ab'd'n N)
Pearson, Ian


Hughes, Roy (Newport E)
Pendry, Tom


Hughes, Simon (Southwark)
Pickthall, Colin


Hutton, John
Pike, Peter L


Illsley, Eric
Powell, Sir Raymond (Ogmore)


Ingram, Adam
Prentice, Mrs Bridget


Jackson, Ms Glenda (Hampst'd)
(Lewisham E)


Jackson, Mrs Helen (Hillsborough)
Prentice, Gordon (Pendle)





Prescott, Rt Hon John
Stevenson, George


Primarolo, Ms Dawn
Straw, Jack


Purchase, Ken
Sutcliffe, Gerry


Quin, Ms Joyce
Taylor, Mrs Ann (Dewsbury)
 
Radice, Giles
Taylor, Matthew (Truro)


Randall, Stuart
Thumham, Peter


Raynsford, Nick
Timms, Stephen


Reid, Dr John
Tipping, Paddy


Rendel, David
Touhig, Don


Robertson, George (Hamilton)
Trickett, Jon


Robinson, Peter (Belfast E)
Tyler, Paul


Rogers, Allan
Vaz, Keith


Rooker, Jeff
Walker, Rt Hon Sir Harold


Rooney, Terry
Wallace, James


Ross, Ernie (Dundee W)
Walley, Ms Joan


Rowlands, Ted
Wardell, Gareth (Gower)


Ruddock, Ms Joan
Wareing, Robert N


Salmond, Alex
Welsh, Andrew


Sedgemore, Brian
Wicks, Malcolm


Sheerman, Barry
Wigley, Dafydd


Sheldon, Rt Hon Robert
Williams, Rt Hon Alan


Short, Clare
(Swansea W)


Simpson, Alan
Williams, Alan W (Carmarthen)


Skinner, Dennis
Wilson, Brian


Smith, Andrew (Oxford E)
Winnick, David


Smith, Chris (Islington S)
Wise, Mrs Audrey


Smith, Llew (Blaenau Gwent)
Worthington, Tony


Soley, Clive
Wray, Jimmy


Spearing, Nigel
Wright, Dr Tony


Spellar, John



Squire, Ms Rachel
Tellers for the Ayes:


(Dunfermline W)
Mr. Greg Pope and Mr. Dennis Turner.


Steinberg, Gerry



NOES


Ainsworth, Peter (E Surrey)
Burns, Simon


Aitken, Rt Hon Jonathan
Burt, Alistair


Alexander, Richard
Butcher, John


Alison, Rt Hon Michael (Selby)
Butler, Peter


Allason, Rupert (Torbay)
Butterfill, John


Amess, David
Carlisle, John (Luton N)


Ancram, Rt Hon Michael
Carlisle, Sir Kenneth (Linc'n)


Arbuthnot, James
Carrington, Matthew


Arnold, Jacques (Gravesham)
Cash, William


Arnold, Sir Thomas (Hazel G)
Channon, Rt Hon Paul


Ashby, David
Chapman, Sir Sydney


Aspinwall, Jack
(Chipping B)


Atkins, Rt Hon Robert
Churchill, Mr


Atkinson, David (Bour'mth E)
Clappison, James


Atkinson, Peter (Hexham)
Clark, Dr Michael (Rochf'd)


Baker, Rt Hon Kenneth (Mole V)
Clarke, Rt Hon Kenneth


Baldry, Tony
(Rushcliffe)


Banks, Matthew (Southport)
Clifton—Brown, Geoffrey


Banks, Robert (Harrogate)
Coe, Sebastian


Bates, Michael
Congdon, David


Batiste, Spencer
Conway, Derek


Beggs, Roy
Coombs, Anthony (Wyre F)


Bellingham, Henry
Coombs, Simon (Swindon)


Bendall, Vivian
Cope, Rt Hon Sir John


Beresford, Sir Paul
Cormack, Sir Patrick


Biffen, Rt Hon John
Couchman, James


Body, Sir Richard
Currie, Mrs Edwina


Bonsor, Sir Nicholas
Curry, Rt Hon David


Booth, Hartley
Davies, Quentin (Stamf'd)


Boswell, Tim
Davis, Rt Hon David (Boothferry)


Bottomley, Peter (Eltham)
Day, Stephen


Bowden, Sir Andrew
Dorrell, Rt Hon Stephen


Bowis, John
Douglas-Hamilton,


Boyson, Rt Hon Sir Rhodes
Rt Hon Lord James


Brandreth, Gyles
Dover, Den


Brazier, Julian
Duncan, Alan


Bright, Sir Graham
Dunn, Bob


Brooke, Rt Hon Peter
Dykes, Hugh


Brown, Michael (Brigg Cl'thorpes)
Eggar, Rt Hon Tim


Bruce, Ian (S Dorset)
Elletson, Harold


Budgen, Nicholas
Evans, David (Welwyn Hatf'ld)






Evans, Jonathan (Brecon)
Knox, Sir David


Evans, Nigel (Ribble V)
Kynoch, George


Evans, Roger (Monmouth)
Lamont, Rt Hon Norman


Evennett, David
Lang, Rt Hon Ian


Faber, David
Legg, Barry


Fabricant, Michael
Leigh, Edward


Fenner, Dame Peggy
Lennox—Boyd, Sir Mark


Field, Barry (Isle of Wight)
Lester, Sir Jim (Broxtowe)


Fishburn, Dudley
Lidington, David


Forman, Nigel
Lilley, Rt Hon Peter


Forsyth, Rt Hon Michael (Stirling)
Lloyd, Rt Hon Sir Peter (Fareham)


Forsythe, Clifford (S Antrim)
Lord, Michael


Forth, Rt Hon Eric
Luff, Peter


Fowler, Rt Hon Sir Norman
Lyell, Rt Hon Sir Nicholas


Fox, Dr Liam (Woodspring)
MacGregor, Rt Hon John


Fox, Rt Hon Sir Marcus (Shipley)
MacKay, Andrew


Freeman, Rt Hon Roger
Maclean, Rt Hon David


French, Douglas
McLoughlin, Patrick


Fry, Sir Peter
McNair—Wilson, Sir Patrick


Gale, Roger
Madel, Sir David


Gallie, Phil
Maitland, Lady Olga


Garel—Jones, Rt Hon Tristan
Malone, Gerald


Garnier, Edward
Mans, Keith


Gill, Christopher
Mariand, Paul


Gillan, Mrs Cheryl
Marlow, Tony


Goodlad, Rt Hon Alastair
Marshall, John (Hendon S)


Goodson—Wickes, Dr Charles
Marshall, Sir Michael (Arundel)


Gorman, Mrs Teresa
Martin, David (Portsmouth S)


Grant, Sir Anthony (SW Cambs)
Mates, Michael


Greenway, Harry (Ealing N)
Mawhinney, Rt Hon Dr Brian


Greenway, John (Ryedale)
Mayhew, Rt Hon Sir Patrick


Griffiths, Peter (Portsmouth N)
Mellor, Rt Hon David


Gummer, Rt Hon John
Merchant, Piers


Hague, Rt Hon William
Mitchell, Andrew (Gedling)


Hamilton, Rt Hon Sir Archibald
Mitchell, Sir David (NW Hants)


Hamilton, Neil (Tatton)
Moate, Sir Roger


Hampson, Dr Keith
Molyneaux, Rt Hon Sir James


Hanley, Rt Hon Jeremy
Monro, Rt Hon Sir Hector


Hannam, Sir John
Montgomery, Sir Fergus


Hargreaves, Andrew
Moss, Malcolm


Harris, David
Needham, Rt Hon Richard


Haselhurst, Sir Alan
Neubert, Sir Michael


Hawkins, Nick
Newton, Rt Hon Tony


Hawksley, Warren
Nicholls, Patrick


Heald, Oliver
Nicholson, David (Taunton)


Heath, Rt Hon Sir Edward
Norris, Steve


Heathcoat—Amory, Rt Hon David
Onslow, Rt Hon Sir Cranley


Hendry, Charles
Oppenheim, Phillip


Heseltine, Rt Hon Michael
Ottaway, Richard


Hicks, Sir Robert
Page, Richard


Higgins, Rt Hon Sir Terence
Patee, James


Hogg, Rt Hon Douglas (Grantham)
Patnick, Sir Irvine


Horam, John
Patten, Rt Hon John


Howard, Rt Hon Michael
Pattie, Rt Hon Sir Geoffrey


Howell, Rt Hon David (Guildf'd)
Pawsey, James


Howell, Sir Ralph (N Norfolk)
Peacock, Mrs Elizabeth


Hughes, Robert G (Harrow W)
Pickles, Eric


Hunt, Rt Hon David (Wirral W)
Porter, David


Hunt, Sir John (Ravensb'ne)
Portillo, Rt Hon Michael


Hunter, Andrew
Powell, William (Corby)


Hurd, Rt Hon Douglas
Redwood, Rt Hon John


Jack, Rt Hon Michael
Renton, Rt Hon Tim


Jackson, Robert (Wantage)
Richards, Rod


Jenkin, Bernard (Colchester N)
Riddick, Graham


Johnson Smith,
Rifkind, Rt Hon Malcolm


Rt Hon Sir Geoffrey
Robathan, Andrew


Jones, Gwilym (Cardiff N)
Roberts, Rt Hon Sir Wyn


Jones, Robert B (W Herts)
Robertson, Raymond S (Ab'd'n S)


Kellett—Bowman, Dame Elaine
Robinson, Mark (Somerton)


Key, Robert
Roe, Mrs Marion


King, Rt Hon Tom
Ross, William (E Lond'y)


Kirkhope, Timothy
Rowe, Andrew


Knapman, Roger
Rumbold, Rt Hon Dame Angela


Knight, Mrs Angela (Erewash)
Ryder, Rt Hon Richard


Knight, Rt Hon Greg (Derby N)
Sackville, Tom


Knight Dame Jill (Edgbaston)
Scott, Rt Hon Sir Nicholas





Shaw, David (Dover)
Thornton, Sir Malcolm


Shaw, Sir Giles (Pudsey)
Townend, John (Bridlington)


Shephard, Rt Hon Mrs Gillian
Townsend, Sir Cyril (Bexl'yh'th)


Shepherd, Sir Colin (Heref'd)
Tracey, Richard


Shepherd, Richard (Aldridge)
Tredinnick, David


Shersby, Sir Michael
Trend, Michael


Skeet, Sir Trevor
Trotter, Neville


Smith, Tim (Beaconsf'ld)
Twinn, Dr Ian


Smyth, Rev Martin (Belfast S)
Vaughan, Sir Gerard


Soames, Nicholas
Viggers, Peter


Speed, Sir Keith
Waldegrave, Rt Hon William


Spencer, Sir Derek
Walden, George


Spicer, Sir Jim (W Dorset)
Walker, A Cecil (Belfast N)


Spicer, Sir Michael (S Worcs)
Walker, Bill (N Tayside)


Spink, Dr Robert
Ward, John


Spring, Richard
Wardle, Charles (Bexhill)


Sproat, Iain
Waterson, Nigel


Squire, Robin (Hornchurch)
Watts, John


Stanley, Rt Hon Sir John
Wheeler, Rt Hon Sir John


Steen, Anthony
Whitney, Sir Raymond


Stephen, Michael
Whittingdale, John


Stem, Michael
Wiggin, Sir Jerry


Stewart, Allan
Wilkinson, John


Streeter, Gary
Willetts, David


Sumberg, David
Wilshire, David>


Sweeney, Walter
Winterton, Mrs Ann (Congleton)


Sykes, John
Winterton, Nicholas (Macclesf'ld)


Tapsell, Sir Peter
Wolfson, Mark


Taylor, Ian (Esher)
Wood, Timothy


Taylor, John M (Solihull)
Yeo, Tim


Taylor, Sir Teddy
Young, Rt Hon Sir George


Temple—Morris, Peter



Thomason, Roy
Tellers for the Noes:


Thompson, Sir Donald (Calder V)
Mr. Bowen Wells and Mrs. Jacqui Lait.


Thompson, Patrick (Norwich N)

Question accordingly negatived.

New clause 4

DISTRAINT ETC. OF PROPERTY ONLY UNDER THE SUPERVISION OF A COURT

'The property of any person in England and Wales shall not be distrained, or attached or otherwise forcibly taken by the Commissioners of Inland Revenue or the Commissioners of Customs & Excise or any person acting under their instruction or authority in settlement of a liability arising under the taxes for which they are responsible except under the supervision of a court.'.—[Mr. Mike O'Brien.]

Brought up, and read the First time.

Mr. Mike O'Brien: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this, it will be convenient to discuss Government amendments Nos. 8 to 10.

Mr. O'Brien: The new clause speaks for itself. The important words are:
under the supervision of a court.
We all want the Inland Revenue and Customs and Excise to have sufficient power to recover sums due, but we also want to ensure that it is done properly.
Through the new clause, the Labour party would require a court to supervise any action taken by the Inland Revenue or Customs and Excise to seize people's property in settlement of a tax debt. Labour's proposals will give taxpayers in England and Wales a similar protection of judicial supervision of distraint of property by the tax authorities to that enjoyed by taxpayers in Scotland.
The Government originally proposed to give the tax authorities wide powers to distrain taxpayers' property which could be exercised without any independent supervision and by any person authorised by the Board of Inland Revenue or the commissioners for Customs and Excise. The Government appeared willing to accept that very junior officers in either tax authority could take people's property to settle a tax debt.
Distraint and the other options open to Customs and Excise are extremely serious powers, involving infringements of the liberty of an individual citizen, such as entering a house or taking money from an account. Although it is right for those powers to exist to recover moneys properly due, such serious powers should be treated seriously by all those who seek to make laws for our citizens. We are not satisfied that the Bill properly reflects that seriousness.
6 pm
In Committee, we said that we supported the Government's attempts to rationalise the law on distraint for the settlement of a tax debt, but argued that taxpayers in England and Wales should enjoy the same right to judicial supervision as those in Scotland. The Government conceded then that there should be some judicial supervision, and the new clause is designed to give statutory effect to that concession. In England and Wales there is effectively no court supervision such as is provided by the sheriff in Scotland. We hope that Customs and Excise will never act lightly, but we need to be sure that there are sufficient safeguards in place to protect the liberty of the citizen.
Customs and Excise deals with an extremely large number of cases, many of which directly affect the ways in which businesses can be run and individuals can earn their living. The 1992–93 figures from the House of Commons Library show that 11 per cent. of bankruptcy petitions and 36 per cent. of company wind-ups were by Customs and Excise. It would take a courageous Minister to say that never in the course of 43,000 cases has a mistake been made. The mere fact that we are dealing with human beings who process the information means that errors might innocently have occurred. That is why it is always right to have a safeguard in place to ensure that rights are not infringed, and the courts are the mechanism by which we have traditionally sought to do that.
The Exchequer Secretary will no doubt say that in Scotland, when the sheriff signs the order for poinding or arrestment of earnings or funds, he does so merely to ensure that the formalities are complied with. Why should that supervision be necessary in Scotland but not in England and Wales? Why did the clause relating to the new attachment power in England and Wales, which was based on the Scottish example, lack the safeguards that apply to arrestment in Scotland?
I accept that the sheriff's involvement is ex parte, in that the person against whom the order is made does not appear before the sheriff and put a case, but the sheriff is there to supervise and to ensure that there is no abuse in terms of the paperwork. It is possible to raise questions about the appropriateness of the paperwork and the way in which the case has been conducted—not to make a detailed inquiry, but to ensure that there is adequate

protection. In Scotland, the British citizen is protected and orders are supervised. If that protection is necessary in Scotland, as the Government clearly accept, it is equally necessary in England and Wales.
I accept that 99.9 per cent. of the orders may result in no inquiry by a supervising court, but on each and every occasion Customs and Excise and the Inland Revenue would be put on their guard to ensure that they had done everything right before going before the court. In a tiny percentage of cases the court might question whether the paperwork is right and the procedures have been correctly complied with. The point of a supervisor is to make officials think long and hard before exercising their considerable powers.
To do the Exchequer Secretary credit—I would always do so where possible—he said in Committee:
The issue remains—should there be any judicial intervention in the English and Welsh system? I have agreed that there should be and that it should be introduced by regulation.
He also said:
I accept that this is a legitimate cause for concern, which we shall look to address when we introduce the regulations. I emphasise that, if those regulations are not passed by Parliament, the clause does not become effective. We shall address the issue in consultation with the organisations that have contacted us in the past few days."—[Official Report, Standing Committee B, 13 February 1997; c. 58, 53.]
I am grateful to the Exchequer Secretary: in the fairly lengthy and complex debate in Committee about the differences between the Scottish and the English and Welsh court procedures, he accepted that important principles were at stake and said that the Government would try to deal with them through regulations.
The problem is that court supervision should be dealt with by statute, because regulations tend to be too easily changed. Historically, statute has been used to protect our citizens and ensure that their rights are not infringed. Statutes are always rigorously scrutinised in the House, whereas regulations, as any hon. Member who has served on one of the relevant Standing Committees will know, tend to go through on the nod or with limited scrutiny, although I accept that on occasion the process is more thorough.
Why is it right to protect the Scots in a statute but not those resident in England and Wales? Why do the Scots have a statute that allows supervision of an order by the sheriff, but citizens of England and Wales do not?
It is also curious that the Government's new order gives Customs and Excise an extra string to its bow to go beyond the traditional civil procedure of a garnishee order. The new power may be justified; I do not object to it. However, as someone who has had to deal with such orders in court proceedings, I know that they are closely scrutinised by those who issue them and that there is considerable procedure and discussion before they are issued, because they can be onerous.
Customs and Excise is being given an attachment power, which it no doubt requires. Will the Exchequer Secretary ensure that where powers are given to Customs and Excise and to the Inland Revenue there is supervision? Supervision should be properly set out in statute. It is not satisfactory to deal with it by mere regulation. I ask the Government to think again and accept new clause 4, which is based on the law in Scotland. It is a sensible, reasonable protection for citizens that most


hon. Members would accept. In principle, at least, the Exchequer Secretary seems to accept it. He seeks to introduce much the same provision by regulation, but he does not have to wait for a regulation: if it is necessary, as he accepted in Committee that it is, let us do it now.

Mr. Tim Smith: New clause 4 is far too widely drawn in two respects. In Committee, concern was expressed about clause 54, which deals only with attachment of debts by Customs and Excise. New clause 4 deals not only with attachment of debts, but with matters that are covered by clauses 51 and 52—that is, enforcement by distress and enforcement by diligence. Moreover, it deals not only with Customs and Excise but with the Inland Revenue. The Inland Revenue is not given new powers by clause 54, which refers only to the commissioners, which I understand to mean the commissioners of Customs and Excise.
I greatly welcome the way in which my hon. Friend the Exchequer Secretary has dealt with the matter. It was difficult to get the right balance. We must give Customs and Excise the powers that it needs to enforce the law but, equally, we must ensure that the taxpayer is properly protected. My hon. Friend listened carefully to the arguments advanced and I believe that he has not been able to satisfy himself since that all the concerns that were expressed have been properly dealt with. For that reason, he has tabled amendment No. 10 which deletes clause 54. For the time being, I believe that that is the right solution.

The Exchequer Secretary to the Treasury (Mr. Phillip Oppenheim): I thank my hon. Friend the Member for Beaconsfield (Mr. Smith) for his comments, which adequately sum up the situation. We have decided to drop the attachment provisions. He also summed up what is wrong with new clause 4.
New clause 4 relates to clause 54 as well as to clause 51. That may be where Opposition confusion stems from. Clause 54 made provision for attachment of debts. As my right hon. Friend the Member for Beaconsfield said—I am sorry, I mean my hon. Friend. I am getting ahead of myself. Government amendment No. 10 withdraws clause 54. As I mentioned in Committee, we had a long public consultation exercise last summer, during which no objections were raised to the proposed attachment provisions. We also had a VAT Budget open day at the end of January. Again, the interested parties raised no objections. Objections were raised only fairly late in the day in February. I listened carefully to those objections and decided that they had some validity.
In Committee, I undertook to consult further, to introduce safeguards if it was possible and to ensure that there was a review procedure for attachment. Since then, Customs and Excise has met the British Bankers Association and other interested parties. Although several of their concerns have been answered, there were other issues that could not be satisfactorily resolved in the remaining short time scale. That is why I have decided to defer introduction of the attachment provisions to allow customs to continue its discussions and consult further. That is where we are with clause 54. If the House accepts our amendment, clause 54 will not happen.
6.15 pm
The problem with new clause 4 is that it applies not only to clause 54 but, rather oddly, to the relatively innocuous clause 51. It extends an extra layer of judicial review to distraint or distress procedures. Clause 51 merely extends to customs dues the existing distress provisions which currently apply to all indirect taxes except customs dues: it does not change the 150-year-old laws in any other way. I accept that the Opposition are acting in the right spirit of trying to get things right, but I hope that I can convince them that in this instance they are not right, for the following reasons.
First, new clause 4 involves a significant administrative burden. If passed, it would be damaging for the recovery of outstanding unpaid taxes and lead to increased revenue loss. I will give an example. Current month-end arrears of VAT and direct taxes—let us not forget that this applies to Inland Revenue direct taxes as well as to Customs and Excise indirect taxes—amount to some £5.8 billion. New clause 4 requires both Customs and Excise and the Inland Revenue to seek prior judicial supervision: a court order would have to be obtained to begin action to recover unpaid debt. It thus seeks to overturn more than 150 years of a tried, tested and effective method of recovering taxes. In my time as Exchequer Secretary, I have not, to the best of my knowledge, received any complaints about the existing system. For 150 years, Customs and Excise and the Inland Revenue have used those debt recovery powers without significant problems. They have those powers because they are involuntary creditors: unlike private individuals and commercial interests, they cannot vet and choose their customers and stop supplies or credit at will.
Any delay in debt recovery will have a marked effect on the flow of funds into the Exchequer. For example, a delay of only seven days in the recovery of tax and VAT arrears would cost £100 million. Court judgment and execution would delay recovery by at least 28 days, resulting in a loss of some £450 million to the Exchequer. I invite the hon. Member for North Warwickshire (Mr. O'Brien), given that he has accepted our tax and spending plans, to say how that hole would be made up.
There is a fundamental misconception that there is no judicial supervision of the procedure. If taxpayers wish to dispute demands for unpaid or undeclared tax liabilities, they have a right to appeal. With regard to Customs and Excise, it can take the dispute to an independent VAT and duties tribunal, and if necessary, it can appeal to a higher court. In such a dispute, all recovery action is suspended in respect of any amount. It is policy that debts are sent for recovery under the distress or distraint procedures only if they are already established and overdue.
To put into context how onerous new clause 4 would be, Customs and Excise and the Inland Revenue have 375,000 distress cases per year. They are all authorised at a responsible level and all subject to having been to a VAT tribunal or the relevant judicial body if they are disputed. If, after those disputes have been settled, or the taxpayer has had the opportunity to settle the dispute at a VAT tribunal or other judicial body, collection also required prior and continuing court supervision, the volume of cases would flood the courts. It would pretty well double the number of cases before the courts and place a prohibitive administrative burden on Revenue Departments and the Lord Chancellor's Department.
In a sense, the new clause would put the Inland Revenue and Customs and Excise at a disadvantage compared with ordinary private or commercial interests trying to collect debts. Customs and Excise may already have gone to a customs tribunal, a VAT tribunal or another judicial body, and would then have to go to court for a second time whereas a private individual or a commercial interest would have to go to a court only once. If they won the case, the court would then supervise the debt collection. The measure would thus be onerous and expensive, and it would increase the cost for each tax defaulter by about £40 per warrant.
The hon. Member for North Warwickshire said that there is supervision in Scotland, although he acknowledged that things are different in Scotland. Indeed they are. We tried to establish in Committee the fact that the sheriff court does not allow for any appeal or appearance by a defaulter. In Committee, the shadow Chief Secretary made a brief appearance and suggested that in Scotland a defaulter might be able to introduce a caveat. As I said after he left the Committee, before the debate had ended, that is not the case when a defaulter comes up against a Government Department such as Customs and Excise or the Inland Revenue. Thus it is not true to say that there is judicial supervision allowing for an appeal in Scotland. What the hon. Gentleman proposes today goes way beyond what happens in the sheriff court, which in any case is very different.
There is another problem with the new clause. I understand that it applies only to England and Wales and not to Northern Ireland. There may be a reason for that, but if the clause is to be consistent it should also apply to Northern Ireland.
The new clause would be very expensive. It would also change distress procedures that have been carried out for 150 years without any great problems. It has nothing to do with attachment, which relates only to clause 54 and which we have already agreed to defer. The new clause would give tax defaulters far greater protection in the rest of the United Kingdom than in Scotland, and would thus increase the imbalance between England, Wales, possibly Northern Ireland, and Scotland. I cannot understand why the Opposition would want that.
For those and other reasons, I strongly urge the House, in the interests of all taxpayers, to resist the new clause.

Mr. Mike O'Brien: Amid some not very good points the Minister also made some good ones, but before dealing with them I want to answer the hon. Member for Beaconsfield (Mr. Smith). I happen to have with me the text of the Official Report of our Committee proceedings when the Exchequer Secretary was replying to the hon. Gentleman, who had been discussing the differences between clauses 51 and 52. The Minister seemed then to accept that there was a legitimate case for concern, and went on to deal with the business of regulations. The problem in Committee was that we were discussing clauses 54, 51 and 52 all at once—they got jumbled up in one debate.
Our concern, as outlined by the shadow Chief Secretary, was to establish the fact that, whereas rules in Scotland protect citizens there, they do not apply in the same way in England and Wales—or in Northern Ireland.
We were not dealing with the new powers in clause 54 specifically: we were worried in general about the difference between Scotland on the one hand and England and Wales on the other.

Mr. Oppenheim: I can probably help the hon. Gentleman. The situation is certainly rather confusing, and clauses 51, 52, 53 and 54 are related to one another. The Scottish question arose not primarily because of concern about the standard distress provisions in clauses 51 and 52, but because of how those provisions related to clause 54 in terms of attachment and arrestment—Customs and Inland Revenue being able to go into people's accounts. That power already exists in Scotland, and it was alleged that taxpayers there enjoyed better protection because of the intervention of the sheriff court. That extra power of arrestment in Scotland does not exist in England—hence the confusion. There are certainly links, but because we have dropped clause 54 and its powers of attachment and arrestment for the United Kingdom, the situation does not now arise.
Apart from anything else, the new clause will cause problems because it will introduce a further judicial tier for ordinary distress or distraint cases. That extra provision would be massively expensive and time consuming—although for some reason it would not apply in Northern Ireland—and it would create a major imbalance between Scotland and the rest of the United Kingdom because it would give tax defaulters much more protection in the latter than in the former.

Mr. O'Brien: The fact remains that in Scotland there is supervision by a sheriff. Just because a power has lasted for 150 years, that does not mean that it is adequate. So why have Governments left matters so as to allow no supervision of distraint by courts in England and Wales but to allow sheriff courts in Scotland to exercise some supervision?
The Minister says that we are introducing a number of terrible measures and creating an extra layer of judicial supervision. It is, however, a very limited layer. No one suggests that the powers of judicial supervision should go much further than those exercised in Scotland where, as the Exchequer Secretary told us in Committee, there is merely a limited power to check that all procedures have been properly complied with and that documents have been properly prepared. That is what we suggest should happen here: we want the same sort of supervision to apply in the same sort of way in England, Wales and Northern Ireland. I do not accept that this will involve any more delay than is experienced in Scotland, where there appears to be little or no delay. If there were delays, I assume that the Government would have ended them by now.
The Government accept the Scottish situation, so I cannot for the life of me see why there should be less protection for citizens in England and Wales. I have listened to the Minister's points, some of which—certainly those in relation to Northern Ireland—were valid. I can also see that the word "supervision" denotes a certain looseness in the drafting which might be tightened up at a later stage. Therefore, if the Minister has nothing to add at this point, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 13

RELIEF FROM INCOME TAX ON EXPENDITURE ON ENERGY SAVING MATERIALS

'.—(1) The following section shall be inserted in the Taxes Act 1988 after section 265—
"Relief from tax on expenditure on energy saving materials
265A.—(1) Subject to the following provisions of this section, an individual who incurs expenditure of £25 or more in any year of assessment on energy saving materials shall be entitled to a deduction from his total income for that year of assessment equal in amount to one—half of that expenditure.
(2) In this section 'energy saving materials' means any goods manufactured solely for any one or more of the following purposes—

(a) cavity wall insulation; 
(b) loft insulation; 
(c) under-floor insulation; 
(d) insulating hot water tanks; 
(e) insulating pipes and other plumbing fittings; 
(f) draft proofing; 
(g) controlling domestic heating systems; 
(h) external and internal wall cladding; 
(i) providing low emissivity glazing.

(3) The Secretary of State may by order made by statutory instrument add to the purposes specified in subsection (2) above; and a statutory instrument under this subsection shall be subject to annulment by a resolution of the House of Commons.
(4) A person shall not be entitled to relief under this section in any year of assessment if—

(a) (disregarding this section) his total income for that year, after all deduction, exceeds the lower rate limit for that year; or
(b) he does not carry out the work for which the energy saving materials in question were purchased within 12 months of the date on which they were purchased. 

All such assessment and adjustments of assessments shall be made as may be necessary to give effect to this subsection.
(2) This section shall apply in relation to expenditure incurred on or after 1st January 1998 providing that if before that date the Treasury has by Order made provision for giving relief of not less than nine and one half per cent. on the VAT that would otherwise be chargeable on energy saving materials as defined by section 265A of the Taxes Act 1988 then this section shall only apply if provided for by Order made at any time by the Treasury.'.—[Mr. Simpson.]

Brought up, and read the First time.

Mr. Alan Simpson: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Sir Geoffrey Lofthouse): With this, it will be convenient to discuss new clause 15—Report on VAT on energy saving materials (No. 2)—
'Within twelve months of this Act receiving Royal Assent the Treasury shall report to Parliament on the consequences to the Exchequer of reducing VAT on energy saving materials.'.

Mr. Simpson: Earlier today, I had the good fortune to be able to introduce a ten-minute Bill entitled Warm Homes and Energy Conservation (Fifteen Year Programme). It tried to set in context the scale of the fuel poverty that this country has to face. It is against the background of that Bill that I want to speak to the new clause this evening.
I hope that you, Mr. Deputy Speaker, will allow me to give some background to this issue. Hon. Members will recall that, last year, I moved a similar amendment to the then Finance Bill in an attempt to secure exactly the same outcome—the reduction of VAT on energy-saving materials to 8 per cent. I had to do that in a convoluted way through a rebate system, because it was one of the few mechanisms allowed under the terms of the amendment of the law resolution.
I understood and anticipated that this year the Treasury would look again at the amendment of the law resolution, in order to try to close that loophole, and it did so. That meant that, this year, I had to find other ways to bring back to the House an issue that represents not only the will of the country but probably the will of the majority of Members of Parliament, were we able to get a clear and simple vote on the principle of reducing VAT to 8 per cent. on home insulation products. This year, I have done so by way of the provisions that allow amendments in the context of VAT relief.
6.30 pm
First, I want to take us back to the underlying tax principle. I am grateful to the former Chancellor of the Exchequer, the right hon. Member for Kingston upon Thames (Mr. Lamont), who said in his 1993 Budget statement:
For the first time, the rate of VAT on domestic fuel and power will be the same as that charged on goods like loft insulation material, which improve energy efficiency. This will bring an end to the current anomaly, which makes nonsense of any attempt to use the tax system to improve the environment."—[Official Report, 16 March 1993; Vol. 221, c. 183.]
At that time, the House in its wisdom decided to vote for the reduction of VAT on domestic fuel from 17.5 per cent. to the current 8 per cent. The motive behind my amendments has consistently been to pursue the logic set out by the former Chancellor, which is that it is absurd to have taxation policies that, in an environmental context, result in our taxing energy conservation more heavily than energy consumption. That is environmental nonsense.
I have had to go to considerable lengths, both this year and last year, to get amendments in order in the Finance Bill debate, so as to have the right to advance that principle. I want to put on record my gratitude to the Clerks for their considerable patience with my pursuit of a series of amendments that I had thought were in order but that all fell at one fence or another. The Clerks were unfailingly patient with my attempts and my determination to bring this matter before the House.
New clause 13 is an amendment to the Taxes Act 1988. The mechanism by which VAT would effectively be reduced would be through altering certain arrangements within the income tax system. It would allow relief to be claimed, by those who are only basic rate taxpayers, on the basis of 50 per cent. of the tax paid on energy conservation and home insulation products amounting to a sum of more than £25 in any tax year. The sums involved are the same as the relief that such claimants would receive were they to be given a direct reduction in the rate of VAT charged on energy-saving materials.
There is a proviso for those who would question whether going through the Inland Revenue collection, relief and rebate system is the most sensible way of pursuing the principle. That proviso is set out in


subsection (2) of the new clause. It gives the Treasury the option of saying, if that was too cumbersome a collection mechanism and it preferred a direct reduction in VAT, that it could achieve the same result simply by coming back to the House and informing it of that preference.
The underlying principle is the one set out by the former Chancellor in respect of fairness in taxation. That principle has been picked up by the Labour party and by other Opposition parties in the policies we pursue. I do not think that my new clause is at odds with new clause 15, which was tabled by Labour Front Benchers, but it does move matters on.
My new clause allows for a period in which the calculations about how to implement the changes enshrined in the new clause could be worked out by the Treasury. The only difference between the new clauses is that that period of reflection and evaluation would be in pursuit not of a principle, but of the mechanism to implement a principle.
That is in no way inconsistent with many other points of principle that have been made by Labour Front Benchers when setting down our definition of fairness in taxation. In a speech on 20 January this year entitled "Responsibility in public finance", the shadow Chancellor, my right hon. Friend the Member for Dunfermline, East (Mr. Brown), made that principle clear when he said:
work is something to be rewarded through the tax system, whereas environmental pollution is something that should be discouraged.
In the same terms, the Labour party made its position clear in the Finance Bill debate last year, when my hon. Friend the Member for Bristol, South (Ms Primarolo) said:
Instead of giving us bureaucratic and technical excuses, the Government should be agreeing to take the proposals forward in the 12-month period provided by the amendments, and should come back next year with clear proposals on how the will of the House can be enacted.
She added:
The Minister must explain whether he is against the principle that VAT on energy-saving materials should be the same as VAT on fuel, or whether he is telling us that Brussels prevents us from making them the same. If Brussels if preventing us, he should clearly explain why. We believe that he has no reasons to offer and we shall vote against the Government."—[Official Report, 27 March 1996; Vol. 274, c. 1131.] I was pleased to see in The Guardian today that the shadow Financial Secretary to the Treasury, my hon. Friend the Member for Edinburgh, Central (Mr. Darling) said:
Although we support the principle of reducing VAT on this area, we cannot support any additional spending commitment unless it can be financed.
I now turn to the question of financing. When we carried out the original calculations of the impact of reducing VAT on energy-saving materials, clear costs were built into that assessment. At worst, the impact on the Treasury coffers would be a cost of £10 million; at best, it was calculated that it could be revenue-neutral or revenue-positive, depending on the assessments made of potential increase in demand for materials supplied, produced and distributed as part of an energy-saving programme.
We also pointed out that the industry had made its own representations to the Secretary of State for the Environment, saying that it calculated that such a measure would result in a 10 per cent. increase in demand for energy-saving products, and that it could help to create and sustain some 10,000 job years in the installation, maintenance and delivery of home insulation products.
Last week, the energy policy committee of the Confederation of British Industry reinforced and repeated its message to the House, saying that it wished VAT to be equalised so that tax on energy conservation was no heavier than that on energy consumption. Eighty per cent. of the annual reports that have been presented to the House by local authorities under the Home Energy Conservation Act 1995 have asked the Secretary of State to reduce VAT to help them meet the targets that the 1995 Act set for them. To date, more than 300 local authorities have also passed motions in support of that tax principle.
Cost is an issue, and I can understand people wanting to know about cost before making a tax commitment, but I want to place this matter in context. Even the worst case scenario involves tax pittances—a minute fraction of the margin of error built into the annual accounts. That £10 million, even in terms of slippage in existing Government programmes, would effectively amount to no more than the time that the Chancellor takes out of delivering his Budget speech when he scratches his backside—a tiny sliver of total spending.
I say to my hon. Friends on both sides of the House that, instead of regarding this proposal as an uncosted spending commitment, if we were to pass the new clause tonight, it would constitute not a spending commitment of the Opposition parties but part of the Government's own commitments in this year's Finance Bill and this year's Budget. I suspect that we would then be arguing about who should take the credit for it, because there continues to be huge and growing support outside the House for that tax principle.
We are arguing tonight not about a delivery mechanism but about whether the principles of fairness in taxation are those that enshrine a belief that we must be fair to the environment and the planet as well as people. In that context, we must move in a direction in which we tax-penalise polluting processes and tax-reward acts of energy conservation.
I believe it was in 1852 that Victor Hugo said:
An invasion of armies can be resisted, but not an idea whose time has come.
I ask the House to take note of the fact that we may have before us an idea whose time has come, and a public who long for us to recognise that.

Mr. David Heathcoat—Amory: We—at least I—debated this issue with the hon. Member for Nottingham, South (Mr. Simpson) last year, myself from a different position, but I still have considerable regard for the hon. Gentleman. I admire him for his consistency, and the fact that he has always believed that one achieves a social end and an environmental end by making better use of our energy. I say the same about some Conservative Members who have always tried to bring together those two concerns into a programme to improve energy efficiency.
I very much share the aims of the hon. Member for Nottingham, South, and have done so ever since I served in the Department of Energy, now abolished, in which


I noted that we still waste a great deal of energy in this country, although very often the people who shout loudest about that do the least about it.
I attended many meetings in many halls throughout the country to promote energy efficiency, and was roundly castigated for lack of Government interest or cash, and I frequently noticed that there were no long-life bulbs in the light fittings, that the room was overheated and that little practical attention was being given to the need to control energy use. There is a fair amount of hypocrisy on this subject.
6.45 pm
I am afraid that it is a hard fact that there are two main incentives to energy efficiency, the first of which is the weather. A cold winter focuses attention on energy efficiency—but the Government do not control the weather.
The other main factor is the cost of energy. It is a sad fact that many people, in their domestic circumstances, ask themselves how they might save energy only when the price is increasing. We have lived for some years at a time of low world fossil fuel prices. Moreover, the success of our privatisation programme has delivered major benefits to the electricity and gas industries, which have flowed through to consumers. That has been a tremendous social benefit to a great many people, but it is bad for energy efficiency.
The Opposition policy to reduce VAT on fuel from 8 per cent. to 5 per cent. would deal another blow to energy efficiency. I am not sure about the status of that promise or pledge or aim or aspiration, but we think that we have it from the Opposition Front Bench that it is Labour's aim, at least, to reduce VAT in that way. It will encourage further waste of energy unless something is done in the opposite direction.
I must make one or two remarks about new clause 13 that will be familiar to the hon. Member for Nottingham, South. Apart from being technically defective in several respects, the new clause overturns a major consideration of the Government: to simplify the tax system, to make it easy to administer and comprehensible to the public, and to further our attempt to reduce burdens on businesses, especially small businesses, if we can.
The proposals in the new clause would entail extremely difficult judgments, to be made by a person or an agency, between various types of energy-efficient materials, as against other equipment or materials that may claim to be energy efficient but might not measure up to such a standard. Someone would have to judge what qualified for such treatment.

Mr. Simpson: Will the right hon. Gentleman acknowledge that, if the option under subsection (2) of the new clause were exercised by the Treasury—that is, if a direct reduction of VAT on energy-saving materials were pursued—it would both simplify the tax system and reduce the burden on industry in the way that he has advocated?

Mr. Heathcoat-Amory: Yes, I concede that it would be rather simpler than the main proposal set out in the new clause. I say in parentheses that the hon. Gentleman

showed considerable ingenuity in getting the whole thing in order on the Finance Bill. However, even with a straight reduction in VAT, someone would have to decide what equipment or materials qualified for such treatment.
Even a straight reduction in VAT would complicate the tax system. We have a single positive rate of VAT in this country, with the exception of the 8 per cent. rate on fuel and power, which is fairly simple to administer because it is easy to define the fuels that qualify, and they are sold by a comparatively narrow range of outlets. However, materials listed in the new clause are sold in every high street hardware store or ironmonger.
Presumably the system would work as follows. An invoice would have to be certified, and made out by the retailer to the effect that the material concerned would or might qualify. There would be no certainty that the material would be installed properly.
If that problem is overlooked, there is still the problem of making repayments to a separate category of people as defined by reference to their status in the Inland Revenue system. We would rapidly be faced by a monstrous paperchase. The proposed system would be highly regulatory and burdensome to business and industry. My criticisms of last year, which I voiced from the Dispatch Box, seem still to be valid, and I recommend their acceptance by the House.
I promised, again from the Dispatch Box, that other ways would be pursued of trying to achieve the ends of which the hon. Member for Nottingham, South has spoken. I know that my words were taken up by those who followed me at the Dispatch Box, and by Ministers in the Department of the Environment.
Something has changed, however, since last year, and I shall end by drawing attention to it. The Labour party has performed a spectacular somersault, and in so doing has revealed breathtaking cynicism. Last year, the hon. Member for Bristol, South (Ms Primarolo) criticised the directors of Friends of the Earth, who had suggested that the Labour party might abstain on the issue. She said that there was no question of abstention. She added that she would ask all hon. Members to vote for a rather similar clause in the name of justice, jobs, democracy and energy efficiency. The hon. Lady was patently insincere in saying that.
A similar scheme has been advanced this year, but suddenly it is not all about justice, jobs, democracy and energy efficiency. Instead, it is now all about the hon. Lady's election chances. She has had a fit of responsibility, like all the poodles who sit behind her, who are not all in the Chamber this evening. They were leaned on to take their names off the amendment. They have meekly fallen into line. That gives a rather disconcerting glimpse of what a future Labour Government might be like—shallow, opportunistic, contradictory, unprincipled and, at root, cowardly.
That contrasts with the approach of the hon. Member for Nottingham, South. I hope that I am not embarrassing him by praising him in this way. Although I disagree with many of his political principles, at least he has shown consistency on these issues, as has my hon. Friend the Member for South Suffolk (Mr. Yeo), who has pursued the issues that are now before us over many years. I cannot help but draw a distinction between the records of the hon. Gentleman and of my hon. Friend and the somersault that has been completed by the Labour party.
I reject the new clause with a certain reluctance, because I am aware of the motives that lie behind it. I can at least be glad that the whole episode has educated us further on what the new Labour party is really like.

Mr. Matthew Taylor: The objective of reducing the cost to the consumer of energy-saving materials has received wide cross-party support. In various ways, well over half the Members of this place have signalled their support for the measures in the new clause. I congratulate the hon. Member for Nottingham, South (Mr. Simpson) on his extraordinary vigour and determination, and not a little ingenuity. It is not easy to get around the rather arcane procedures, if you will allow me to say that of them, Mr. Deputy Speaker, that govern the way in which the House deals with Finance Bills.
There is clear support from hon. Members on both sides of the House, because they know that the outcome would be good for industry and would help to create jobs. Perhaps more important, we have before us a simple and relatively inexpensive measure which, if implemented, would start to tackle the problems of global warming, which have been acknowledged by right hon. and hon. Members. Those problems are recognised by Governments throughout the world. Anyone who does not accept the argument that stems from those problems would not accept anything that I am saying and, equally, would not support the new clause. As I have said, however, the clause is broadly supported.
The new clause would help enormously those with low earnings who are living in damp, cold homes that they cannot afford properly to heat. We know that, every winter, people in this country—mainly, elderly people—die of hypothermia in their homes. In simple terms, that is virtually unknown in any other part of western Europe. For many years, other western European countries have built homes to standards of insulation that are way beyond our own. In many instances, they have colder climates. The people of those countries have no difficulty in affording to heat their homes, because costs are very low.
In that context, it is bizarre that the House should have created a position in which the use of fuel—that is a bad thing in itself, because no one benefits from the use of fuel—is subject to a lower rate of tax than that which applies to fuel conservation, which can help the environment and help people to stay warm. We are in a position to correct that anomaly this evening.
The right hon. Member for Wells (Mr. Heathcoat-Amory), speaking on behalf of the Government when he was Paymaster General, promised to look into ways of achieving a reduction in the cost of energy-saving materials. Here is a chance for the Government to act positively. That applies also to the Labour party, which, until Friday, I thought was in favour of reducing the cost of energy-saving materials. After all, 240 Labour Members had signed an early-day motion calling for the reduction in the cost of such materials. The entire Labour Front-Bench team voted in that way a year ago. Together, working across the House, we came within one vote of defeating the Government on that occasion. We could be almost certain of doing so now, given the Government's changed position, having lost their majority in the House.
Last week, however, I was told that Labour had withdrawn its support. I was told also that Labour Whips were asking Labour Back Benchers to withdraw their support. Yesterday morning, for just a moment, I thought that everything was all right and that I had heard ugly rumours bearing no relation to the truth. In an interview published yesterday by the national energy authorities, the Labour energy spokesman, the hon. Member for Leeds, West (Mr. Battle), said:
as regards energy saving materials, we actually supported the amendment to the last Budget to equalise VAT rates for energy saving materials so I think our intention is plainly staked out there.
That intention has certainly been staked out, but the road to the election is paved with good intentions. It now seems that the hon. Gentleman and the rest of his Front-Bench colleagues will let the Government off the hook. Staring victory in the face, Labour Front-Bench spokesmen opt for a U-turn.
Labour's Treasury team should not be afraid. Its members should have no problem voting for the new clause, because it sets out their policy. Only a couple of months ago, the right hon. Member for Dunfermline, East (Mr. Brown) said:
Taxation is not neutral in the way it raises revenue. How and what government tax sends clear signals about the economic activities they believe should be encouraged, and indeed discouraged, and the values they want to entrench in society. For example, work is something to be rewarded through the tax system, whereas environmental pollution is something that should be discouraged.
How right the right hon. Gentleman is, or rather was.
I feel sorry for the hon. Member for Nottingham, South. Last week, he was doing something on behalf of Labour Front Benchers, and no doubt expected a pat on the back and congratulations on defeating the Government. This week, he will be hauled before the Whips—at the end of the evening, no doubt—and told what a bad chap he is and how he has let the side down.
7 pm
The hon. Gentleman has not changed his policy position. The Labour Front-Bench argument has done a U-turn on itself in the past couple of days. Yesterday, Labour Front Benchers had not identified the money. Today, the problem is not the money, but the new clause, which is not drawn up in precisely the same terms as last year's, and, as it is not identical, they cannot support it. Last year, they did not support the new clause. They supported the caveat that allowed the Government to find a better solution. That caveat remains in the new clause today.
As for the money, it is extraordinary that Labour cannot find less than £10 million; yet, only a few months ago, the shadow Chancellor confirmed that the Labour party would further reduce VAT on energy to 5 per cent., at a cost of some £500 million. He has still not explained how he would fund that.
The Liberal Democrats still support the concept of environmental taxation—shifting tax away from jobs and on to pollution, and the use of scarce resources. Cutting VAT on energy-saving materials would send clear signals about the commitment of the House to combating global warming and helping people to cut their fuel bills and stay warm. It would also send clear signals about the strength of commitment of each hon. Member present in the


Chamber to principles promoting the environment and social justice. A number of Conservative Back Benchers have shown their support, which I welcome. They are standing by their principles.
I congratulate the hon. Member for Nottingham, South and those on the Labour Benches who I know will support him. I note that there is cross-party support for this measure on the Opposition Benches. There is the potential for a Government defeat. In a few moments, that can be delivered. The only thing that will save the Government is the prospect that the Opposition dare not oppose any longer—that they will accept the Government Budget and line up to vote for it and defend the Government's position.
I always knew that we would get little support from Conservative Front Benchers. It did not occur to me for a moment that Labour Front Benchers would reverse their position, let down the environment, show that they cannot be trusted on tax issues and show, above all, that they cannot be trusted on an issue of social justice that would help the old and the cold to stay warm in their homes, and help the environment too. It is a disgrace, and I hope that they will still change their minds.

Mr. Tim Yeo: I warmly congratulate the hon. Member for Nottingham, South (Mr. Simpson) on tabling the new clause and on the ingenuity of its phraseology, which enables us to debate the issue of VAT on energy-saving materials. His persistence deserves admiration, although I fear that it will not receive that from his colleagues on the Opposition Front Bench. Despite his attempts to argue that his new clause was part and parcel of their new clause, there is a huge gulf between new clause 13 and new clause 15.
The case for cutting VAT on energy-saving materials is overwhelming. I will not rehearse the arguments—they have already been referred to in this short debate, and I entirely accept them. I had hoped that we might win the argument with the Treasury today. I thought that there was a chance that the example set by the landfill tax and by the differential rates of duty on petrol showed that the principle of using the tax system for environmental objectives has been completely embraced.
The true significance of the debate is the way in which the new clause has exposed the craven and backsliding attitude of members of the Opposition Front Bench. For months, as the hon. Member for Truro (Mr. Taylor) pointed out, the Labour party has given the impression that it favours cutting VAT on energy-saving materials to 8 per cent. It has abandoned that position more or less overnight—a real kick in the teeth for the green movement, and a warning that, if the Labour party ever came to power, environmental objectives would be at the bottom of its list of priorities.
We have become used to the image of the right hon. Member for Sedgefield (Mr. Blair) as a sort of John Kennedy in reverse. The word has gone forth from Labour party headquarters that there is no freedom, however dear to Labour in the past, that will be defended if such defence might cost the right hon. Gentleman votes in the future. There is no frontier, however bravely protected by Labour in the past, that will be protected in the future if such protection might cost him a vote or two.
The right hon. Member for Sedgefield has justified the overthrow of every principle on which he and his colleagues live their political lives and were elected to the

House, by saying that those were the principles of old Labour. This week he has gone a step further: he has started to overthrow the principles of new Labour as well. Last year, members of his shadow Cabinet backed the proposal to cut the rate of VAT on energy-saving materials. They implied to every listener over the past 12 months that those were still their views, but now we know better. At the very first whiff of grapeshot from the shadow Chancellor, Labour's green aspirations have exploded.
That has happened when Labour is 20 per cent. ahead in the opinion polls. Would any of Labour's present policies survive if its lead slipped to 10 per cent.? The hon. Member for Sheffield, Brightside (Mr. Blunkett) has whispered to teachers that more resources are coming around the corner; let those teachers take heed. The hon. Member for Holborn and St. Pancras (Mr. Dobson) has whispered to public sector trade unions that higher pay settlements are just around the corner; let them take heed as well. One shadow Cabinet Minister after another has toured the country, lining up local councils and whispering that more money is just around the corner; let them all take heed from what has happened today.
Labour's promises are not worth a bucket of warm spit. When the hon. Member for Bristol, South (Ms Primarolo) speaks, she has only to say that she is abandoning new clause 15. Will she say whether Labour, if it ever gets the chance, will cut VAT on energy-saving materials to 8 per cent. or whether it will not?

Mr. Cynog Dafis: I shall not detain the House for more than a few minutes, but it would have been remiss of me if I had not supported the new clause, having been associated with legislation on energy conservation in the past.
The principle of rewarding energy conservation should be at the heart of the tax system. There is no question about that. There has been debate on whether the wasteful use of energy should be punished by raising VAT, as proposed, to 17 per cent. There is a strong argument against that, which was persuasively deployed last year. Our housing stock is extremely inefficient in energy terms and some people would have been severely disadvantaged by that increase in VAT. No one could quibble with the principle of equalisation.
The right hon. Member for Wells (Mr. Heathcoat-Amory) spoke about the complexities that might arise from implementation of the new clause. VAT on domestic fuel is 8 per cent., and a serious attempt should be made to deal with the anomaly between VAT on domestic fuel and VAT on energy-saving materials.
The measure would, at modest cost, improve comfort and warmth and reduce costs for the fuel-poor—an important target group—and create employment and provide environmental gain. It is astonishing that Labour Front Benchers are not prepared to support such a measure.
Last night, in a debate on social values, I suggested that a worrying accommodation was occurring between the Labour position and the Government position. In the present case, we have the mother of all accommodations.


The argument in favour of the new clause is compelling, and the arguments that might be presented against it are among the lamest ever deployed.

Mr. Tony Benn: As a former Secretary of State for Energy, I should like briefly to intervene to support the new clause moved by my hon. Friend the Member for Nottingham, South (Mr. Simpson).
Much is made of old Labour, but I remember the scheme that I introduced as Secretary of State to help the elderly in the winter. We did not depend on the temperature—we provided a 25 per cent. cut in the energy bills of anyone on benefit through the three winter months; that helped.
Any Member of Parliament, regardless of political allegiance, will know the fear of winter that exists among older people. This is not a sophisticated argument. Many people come to my surgeries and complain that their windows are draughty. Draught-proofing is not a sophisticated form of insulation, but those whose homes are losing heat in that manner—when it is avoidable and they can ill afford it—deserve the support of the House.
Another reason why I speak with some feeling is that, as a representative of a former mining constituency, it sticks in my gullet that unemployed miners and others in Chesterfield are dying of hypothermia. It is an outrage that an energy industry was shut down when people cannot keep warm in the winter.
Finally, I shall vote for the new clause because I believe in it—and there may be a case in politics for sticking to what we believe in before, during or after a general election.

Mrs. Margaret Ewing: I have listened attentively to the hon. Members who have spoken during the debate. I noted with interest that the former Paymaster General, the right hon. Member for Wells (Mr. Heathcoat—Amory) returned, as Conservative Members usually do, to the complexities of accepting a technical amendment. Are Conservative Members rejecting the new clause for technical reasons or because they will not accept the morality of the argument?
Someone remarked that there was an element of ingenuity about the new clause. I assure my hon. Friend the Member for Nottingham, South (Mr. Simpson), with whom I work in the warm homes group, that the measure is not about ingenuity but about challenging all hon. Members to achieve a benefit for the many people who suffer from the cold and damp and who want a better life. The House has denied them that outcome for many years.
New clause 13 offers a variety of opportunities. Those of us who have studied the problem in detail know that insulation measures that are applicable in my constituency may not be applicable in Nottingham, South. We must examine all the options. We are trying to offer the people, councillors, local authorities and all the organisations involved the means of reducing heating costs. We must consider also the cost of misery, excessive winter deaths, conditions such as asthma and bronchitis and the chest diseases that many of our constituents suffer as a result of the House's failure to address the problem effectively.
It is important that we pass the amendment tonight. In the past 24 hours, there has been much uncertainty about the Government's intentions regarding value added tax on domestic fuel. The Chancellor of the Exchequer has flown back from China to see what is happening as a result of his interviews with The Grocer magazine. I am delighted to see him in the Chamber. When we proposed reducing VAT on domestic fuel to 5 per cent., we were told bluntly by the Labour party that it was a cynical ploy. We are now considering a new clause that would be a step toward resolving the problem of fuel poverty.
I suspect that all hon. Members will return to warm flats or warm homes tonight. However, hundreds upon hundreds of our constituents will return to homes that are damp and miserable. This measure is a small, but reasonable, step forward. It is more in sorrow than in anger that I ask Labour Front Benchers why they have sent their colleagues home to their warm and comfortable flats while they are sending our constituents to cold and miserable homes.
At Inverness in the north of Scotland, the Labour party gave a clear commitment that it regarded energy efficiency as a key issue, which it promised to put at the top of its housing priorities. Where on earth are the people who were at the Labour party conference at Eden Court in Inverness? They are not here tonight to vote for a step in the right direction.

Sir James Molyneaux: I support the remarks by hon. Members representing the parties below the Gangway. On this and many other related issues, we have acted co-operatively and, dare I say, with a degree of integrity. Our position on this issue has remained constant through many battles.
7.15 pm
Without any bitterness, I tender a word of advice to Her Majesty's Opposition: perhaps it would be in their interest to withdraw their rather meaningless new clause 15. It is rather like saying, "When in doubt, call for a report." We all know exactly what that means and where it ends. There is also a whiff of another phrase that used to be bandied about on both sides: "That the Bill be read in six months' time." There is still time for the Opposition to withdraw their new clause.
I am beginning to regret my decision to retire at the general election, as I shall envy the young folk around me who will return full of vigour to a truly entertaining House of Commons—if today's events are anything to go by.

Ms Primarolo: I shall speak directly to our new clause 15 and return to what is on the amendment paper rather than what might have been on the amendment paper but could not be because of an amendment to the law. At issue this evening is a serious debate about how we should deal with two issues: first, fuel poverty and how we can assist the fuel-poor; and, secondly, energy conservation. When dealing with the question of energy conservation and debates about that issue and about protecting the environment, it is important to recognise—as I am sure all hon. Members do—that environmental objectives may be achieved first, by fiscal measures; and, secondly, by direct regulation or investment in projects to assist the fuel-poor.
Despite the fact that there has been much comment about fuel poverty, new clause 13 does not deal with that issue. I shall return to that point later, as I have a feeling that hon. Members would like me to refer to that new clause. New clause 15 pursues the position that we supported last year: whether a variation of value added taxes on energy-saving materials will assist the objectives of energy conservation and of pursuing our environmental policies, and whether that is workable.
I remind the House that last year's amendment required the Treasury to define energy-saving materials and to consider a reduction of VAT on fuel. New clause 15 requires costings of the practical implications of varying the rate of VAT on fuel. If we could spend the same amount directly investing in people's homes and ensure that it was targeted at the fuel-poor, that would need to be considered.

Mr. Matthew Taylor: As I understand it, the hon. Lady is saying that new clause 13 is technically imperfect. Given that the second part allows any Government to come up with an alternative scheme, could not the Labour party put pressure on the Government to do that? If Labour is in government in a couple of months' time, it will be able to come up with such a scheme in any case.

Ms Primarolo: The hon. Gentleman has just shot himself in the foot by admitting that new clause 13 is not workable. We are trying to come up with a workable proposal. At present, I am speaking to new clause 15, not new clause 13.
The policy goal must be to encourage households, particularly those on low incomes, to invest or to have that done for them, to reduce their fuel bills, and a move towards sustainable development, which would combat fuel poverty, save fossil fuels, cut emissions and generate jobs. An example of that is the environmental task force that Labour would fund, which would specifically address fuel poverty, and it would be targeted to assist the most vulnerable.
There is, of course, no entirely satisfactory way to promote that goal solely through the variation of VAT on insulation materials. The creation of jobs is highly suspect in regard to a major proportion of the materials used, and the work to fit them is often undertaken by households or their friends. Therefore it is important that close regard is paid to how the variation of VAT could be used.

Mrs. Ewing: The hon. Lady referred to the housing task force. Given the statement made by the executive of the Labour party at Inverness last weekend, what exactly does Labour mean when it talks about setting aside funds? Can she give a figure?

Ms Primarolo: It means what it says: that the windfall levy will pay—[Laughter.] I am not surprised that Conservative Members laugh or that some hon. Members now speak in favour of an amendment for which they were not prepared to vote last year. Had they done so,

some progress would have been made, so I shall take no lessons from hypocrites on the Conservative Benches who now claim that they are in favour of energy conservation.

Mr. Alex Salmond: Will the hon. Lady give way?

Ms Primarolo: If I could make some progress, I would be very grateful. I will not leave the hon. Gentleman out, as I am sure that he has a point to make against the Labour party.
Another difficulty is how to determine what qualifies as energy-saving material. We tried to set the Government that task last year, and we asked them to come back with a report this year. It is not unreasonable that that clarification is still necessary, because some building materials have insulation qualities, and if VAT is to be extended to those areas as well, we should know what the full extent is to be. I cannot understand why it is considered so unreasonable to ask for the exact potential.
We also need to consider exactly how we would define energy-saving materials, for instance, referring to the quality of the materials themselves. A good environmental objective would be that not only must the materials be energy efficient but the production of those very materials should be carried out in an energy-efficient way. It may not be possible to deal with all of those items simply through the amendment.

Mr. Salmond: The hon. Lady said that there are Conservative Members who are prepared to vote tonight for something for which they were not prepared to vote last year. That is true, but it is also true that Labour Front Benchers are not prepared to vote tonight for something for which they were prepared to vote last year. What political lessons does she draw from that change of position?

Ms Primarolo: I shall return to what is in new clause 13, because—

Mr. Nigel Evans: She will write to you. [Interruption.]

Mr. Deputy Speaker: Order. [Interruption.] Especially the second row on the Conservative Benches.
Every hon. Member who has taken part in the debate on the new clause has been given a reasonable hearing, and the hon. Lady has a right to the same.

Ms Primarolo: If only I could just write to everybody.
New clause 15 seeks to assess properly the costs of going down that route, so that we can then compare it with alternative strategies to ensure that we maximise our objectives.
On new clause 13, my hon. Friend the Member for Nottingham, South (Mr. Simpson) has been incredibly ingenious—I congratulate him on that—but he has lost sight of what he was seeking to achieve. Every hon. Member who spoke in the debate referred to the poor and the consequences of fuel poverty on the poor. The new clause provides for income tax relief, which would be provided against income tax the year after, and subsection (4)(a) provides for that to be paid at 23 per cent. Therefore, anybody who is not paying income tax cannot


access the relief. Then, having put forward a proposition that does not reach the objectives that Members set in the important speeches in tonight's debate, the get-out clause, "If the Treasury does not like this, just reduce VAT on energy-saving materials," is no way to progress business in the House and to ensure—[Interruption.] Forgive me, but we are trying to create a system that is workable as opposed to scoring points against Labour's Front Bench.

Mr. Ian Pearson: I support my hon. Friend in the sense that we should make good law, and I have strong suspicions that, as drafted, new clause 13 is not good law. She said a moment ago that this applies to the 23 per cent. rate of tax. My understanding is that the lower rate would be 20 per cent. rather than 23 per cent. Will she confirm that not only will many people not qualify, but that one of the fundamental problems is that people who have never had to complete income tax returns will now come under a self-assessment regime, and all the cost savings from the energy-saving materials will be blown in accountants' fees to help them to fill in the forms?

Ms Primarolo: My hon. Friend has made the point. Our new clause addresses the very issues that hon. Members have raised. It would enable an examination of the potential advantages of using a variation of VAT to deliver energy conservation measures. That has to be seen in parallel with the commitment to an environmental task force and the specific assistance given particularly to pensioners, who suffer because they cannot afford fuel.

Mr. Matthew Taylor: Will the hon. Lady give way?

Ms Primarolo: I have given way a number of times, so I shall not give way again.
Tonight's debate should he about the best way to deliver energy conservation and to tackle fuel poverty. Had the Government accepted last year's amendment, we would be discussing how to make progress towards that goal. I hope that the House will accept that, in the provisions in new clause 15, that objective is still in sight. In our discussions on energy conservation, we should decide how to tackle the problems of people who are experiencing fuel poverty through no fault of their own.

Mr. Jack: I thought for a moment that I was dreaming. I was in a fantasy world in which hon. Members on the Opposition Front Bench were talking about saving on the cost of energy. A little cloud appeared in my dream: it was the windfall tax. I realised that that would increase the cost of energy. I ask my hon. Friends to bear that in mind when they consider the Opposition's arguments.
The debate is principally about new clause 13. I do not believe that I can better the arguments against new clause 13 made by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), except to add that it is not only £10 million or £20 million that is at stake—that may be the initial figure, if the new clause were to have the force of law—but it could rise to £100 million. The new clause is exploitable, because there are loopholes all the way through it.
The Government have an excellent record of achievement on and commitment to energy saving, so we do not mind our policies being scrutinised. I, therefore, accept new clause 15. Let the report be written, and let our record shine forth.

Question put, That the clause be read a Second time:—

The House divided: Ayes 58, Noes 241.

Division No. 92]
[7.32 pm


AYES


Alton, David
McGrady, Eddie


Austin—Walker, John
Mackinlay, Andrew


Beggs, Roy
Maclennan, Robert


Beith, Rt Hon A J
Maddock, Mrs Diana


Bendall, Vivian
Mallon, Seamus


Benn, Rt Hon Tony
Molyneaux, Rt Hon Sir James


Bruce, Malcolm (Gordon)
Nicholson, Miss Emma (W Devon)


Campbell, Menzies (Fife NE)
Rendel, David


Carlile, Alex (Montgomery)
Robinson, Peter (Belfast E)


Chidgey, David
Ross, William (E Lond'y)


Clwyd, Mrs Ann
Rowlands, Ted


Corbyn, Jeremy
Salmond, Alex


Cunningham, Ms Roseanna
Shepherd, Richard (Aldridge)


(Perth Kinross)
Simpson, Alan


Davies, Chris (Littleborough)
Skinner, Dennis


Davies, Rt Hon Denzil (Llanelli)
Smith, Llew (Blaenau Gwent)


Evans, John (St Helens N)
Smyth, Rev Martin (Belfast S)


Ewing, Mrs Margaret
Taylor, Rt Hon John D (Strangf'd)


Forsythe, Clifford (S Antrim)
Taylor, Matthew (Truro)


Foster, Don (Bath)
Taylor, Sir Teddy


Harvey, Nick
Thurnham, Peter


Hendron, Dr Joe
Trimble, David



Tyler, Paul


Hughes, Simon (Southwark)
Walker, A Cecil (Belfast N)


Johnston, Sir Russell
Wallace, James


Jones, leuan Wyn (Ynys MÔn)
Welsh, Andrew


Jones, Nigel (Cheltenham)
Wigley, Dafydd


Kennedy, Charles (Ross C & S)
Wise, Mrs Audrey


Kirkwood, Archy



Livingstone, Ken
Tellers for the Ayes:


Llwyd, Elfyn
Mr. Cynog Dafis and Dr. Lynne Jones.


Lynne, Ms Liz



NOES


Ainsworth, Peter (E Surrey)
Brooke, Rt Hon Peter


Alexander, Richard
Brown, Michael (Brigg Cl'thorpes)


Allason, Rupert (Torbay)
Browning, Mrs Angela


Amess, David
Bruce, Ian (S Dorset)


Arbuthnot, James
Budgen, Nicholas


Arnold, Jacques (Gravesham)
Burns, Simon


Ashby, David
Burt, Alistair


Atkins, Rt Hon Robert
Butcher, John


Atkinson, David (Bour'mth E)
Butler, Peter


Atkinson, Peter (Hexham)
Carlisle, John (Luton N)


Baker, Rt Hon Kenneth (Mole V)
Carlisle, Sir Kenneth (Linc'n)


Baldry, Tony
Carttiss, Michael


Banks, Matthew (Southport)
Cash, William


Banks, Robert (Harrogate)
Channon, Rt Hon Paul


Bates, Michael
Chapman, Sir Sydney


Batiste, Spencer
Churchill, Mr


Bellingham, Henry
Clappison, James


Beresford, Sir Paul
Clark, Dr Michael (Rochf'd)


Biffen, Rt Hon John
Clarke, Rt Hon Kenneth


Body, Sir Richard
(Rushdiffe)


Bonsor, Sir Nicholas
Clifton—Brown, Geoffrey


Booth, Hartley
Coe, Sebastian


Boswell, Tim
Congdon, David


Bowden, Sir Andrew
Conway, Derek


Bowis, John
Coombs, Anthony (Wyre F)


Boyson, Rt Hon Sir Rhodes
Coombs, Simon (Swindon)


Brandreth, Gyles
Cope, Rt Hon Sir John


Brazier, Julian
Cormack, Sir Patrick


Bright, Sir Graham
Couchman, James






Currie, Mrs Edwina
Lennox—Boyd, Sir Mark


Curry, Rt Hon David
Lidington, David


Davies, Quentin (Stamf'd)
Lilley, Rt Hon Peter


Davis, Rt Hon David (Boothferry)
Lloyd, Rt Hon Sir Peter (Fareham)


Day, Stephen
Lord, Michael


Devlin, Tim
Luff, Peter


Dorrell, Rt Hon Stephen
MacGregor, Rt Hon John


Douglas—Hamilton,
MacKay, Andrew


Rt Hon Lord James
Maclean, Rt Hon David


Dover, Den
McLoughlin, Patrick


Duncan, Alan
Maitland, Lady Olga


Duncan Smith, Iain
Malone, Gerald


Dunn, Bob
Mans, Keith


Dykes, Hugh
Marland, Paul


Eggar, Rt Hon Tim
Marlow, Tony


Elletson, Harold
Marshall, John (Hendon S)


Evans, Jonathan (Brecon)
Marshall, Sir Michael (Arundel)


Evans, Nigel (Ribble V)
Martin, David (Portsmouth S)


Evans, Roger (Monmouth)
Mawhinney, Rt Hon Dr Brian


Faber, David
Merchant, Piers


Fabricant, Michael
Mitchell, Andrew (Gedling)


Fenner, Dame Peggy
Mitchell, Sir David (NW Hants)


Fishburn, Dudley
Moate, Sir Roger


Forman, Nigel
Monro, Rt Hon Sir Hector


Forsyth, Rt Hon Michael (Stirling)
Montgomery, Sir Fergus


Forth, Rt Hon Eric
Neubert, Sir Michael


Fowler, Rt Hon Sir Norman
Newton, Rt Hon Tony


Freeman, Rt Hon Roger
Nicholson, David (Taunton)


French, Douglas
Norris, Steve


Fry, Sir Peter
Onslow, Rt Hon Sir Cranley


Gallie, Phil
Oppenheim, Phillip


Garnier, Edward
Ottaway, Richard


Gill, Christopher
Page, Richard


Gillan, Mrs Cheryl
Paice, James


Goodlad, Rt Hon Alastair
Patnick, Sir Irvine


Goodson—Wickes, Dr Charles
Patten, Rt Hon John


Greenway, John (Ryedale)
Pattie, Rt Hon Sir Geoffrey


Griffiths, Peter (Portsmouth N)
Pawsey, James


Grylls, Sir Michael
Peacock, Mrs Elizabeth


Hague, Rt Hon William
Pickles, Eric


Hamilton, Rt Hon Sir Archibald
Porter, David


Hamilton, Neil (Tatton)
Portillo, Rt Hon Michael


Hanley, Rt Hon Jeremy
Powell, William (Corby)


Hargreaves, Andrew
Richards, Rod


Harris, David
Riddick, Graham


Hawkins, Nick
Rifkind, Rt Hon Malcolm


Hawksley, Warren
Robathan, Andrew


Heald, Oliver
Roberts, Rt Hon Sir Wyn


Heathcoat—Amory, Rt Hon David
Robertson, Raymond S (Ab'd'n S)


Hendry, Charles
Robinson, Mark (Somerton)


Horam, John
Roe, Mrs Marion


Hordern, Rt Hon Sir Peter
Rowe, Andrew


Howard, Rt Hon Michael
Ryder, Rt Hon Richard


Howell, Rt Hon David (Guildf'd)
Sackville, Tom


Howell, Sir Ralph (N Norfolk)
Scott, Rt Hon Sir Nicholas


Hughes, Robert G (Harrow W)
Shaw, David (Dover)


Hunt, Rt Hon David (Wirral W)
Shaw, Sir Giles (Pudsey)


Hunt, Sir John (Ravensb'ne)
Shephard, Rt Hon Mrs Gillian


Hunter, Andrew
Shepherd, Sir Colin (Heref'd)


Hurd, Rt Hon Douglas
Shersby, Sir Michael


Jack, Rt Hon Michael
Skeet, Sir Trevor


Jackson, Robert (Wantage)
Smith, Tim (Beaconsf'ld)


Jenkin, Bernard (Colchester N)
Speed, Sir Keith


Johnson Smith,
Spencer, Sir Derek


Rt Hon Sir Geoffrey
Spicer, Sir Jim (W Dorset)


Jones, Gwilym (Cardiff N)
Spicer, Sir Michael (S Worcs)


Jones, Robert B (W Herts)
Spink, Dr Robert


Key, Robert
Spring, Richard


King, Rt Hon Tom
Sproat, Iain


Knight, Mrs Angela (Erewash)
Squire, Robin (Hornchurch)


Knight, Dame Jill (Edgbaston)
Stanley, Rt Hon Sir John


Knox, Sir David
Stephen, Michael


Kynoch, George
Stern, Michael


Lait, Mrs Jacqui
Stewart, Allan


Legg, Barry
Streeter, Gary


Leigh, Edward
Sweeney, Water





Sykes, John
Wardle, Charles (Bexhill)


Taylor, Ian (Esher)
Waterson, Nigel


Taylor, John M (Solihull)
Watts, John


Temple—Morris, Peter
Wells, Bowen


Thomason, Roy
Whitney, Sir Raymond


Thompson, Sir Donald (Calder V)
Whittingdale, John


Thompson, Patrick (Norwich N)
Widdecombe, Rt Hon Miss Ann>


Thornton, Sir Malcolm
Wiggin, Sir Jerry


Townend, John (Bridlington)
Wilkinson, John


Townsend, Sir Cyril (Bexl'yh'th)
Wilshire, David


Tracey, Richard
Winterton, Mrs Ann (Congleton)


Tredinnick, David
Wolfson, Mark


Trend, Michael
Wood, Timothy


Trotter, Neville
Young, Rt Hon Sir George


Twinn, Dr Ian



Vaughan, Sir Gerard
Tellers for the Noes:


Viggers, Peter
Mr. Matthew Carrington and Mr. Roger Knapman.


Waldegrave, Rt Hon William



Walden, George

Question accordingly negatived.

New Clause 15

REPORT ON VAT ON ENERGY SAVING MATERIALS (No. 2)

'Within twelve months of this Act receiving Royal Assent the Treasury shall report to Parliament on the consequences to the Exchequer of reducing VAT on energy saving materials.'.—[Mr. Darling.]

Brought up, read the First and Second time, and added to the Bill.

New clause 16

VEHICLE EXCISE DUTY AND ISLES BASED VEHICLES

'() The small islands to which paragraph 18 of Schedule 1 of the Vehicle Excise and Registration Act 1994 applies, shall include those islands designated under an Order made under the provisions of the said paragraph together with the main island of Orkney, the main island of Shetland, Lewis and Harris.'.—[Mr. Wallace.]

Brought up, and read the First time.

Mr. James Wallace: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this, it will be convenient to discuss new clause 17—Exemption of small islands based vehicles—
'() Paragraph 18 of Schedule 1 of the Vehicle Excise and Registration Act 1994, shall be amended as follows:
In sub-paragraph (7) the definition of 'mainland road' shall be deleted, and the following definition shall be substituted therefore:
'mainland road" means any public road in the United Kingdom, other than one which is on a small island or which connects two such islands or is on the main island of Orkney, the main island of Shetland. Lewis or Harris.'.".'.

Mr. Wallace: The new clauses give me an opportunity to raise a matter that is important to haulage contractors in my constituency, specifically those based in some of the smaller isles.
The origins of new clause 16 lie in earlier Finance Acts. During the passage of those Acts, there was considerable debate about the application of an exemption from the higher rates of vehicle excise duty on lorries based in the smaller isles. Before the Finance


Act 1995, lorries based on islands where there was no opportunity for plating and testing were given an exemption, and paid a much lower rate of vehicle excise duty. The Bill as originally proposed would have taken that away, and would have meant some haulage contractors on those isles paying over £1,000 more than they would have paid if the exemption had continued.
After a spirited debate in Committee on the Floor of the House, the right hon. Member for Wells (Mr. Heathcoat-Amory), who was then a Treasury Minister, met hon. Members whose constituencies contained islands. He gave us a fair hearing, and accepted that we had something of a case. An amendment was subsequently tabled, and there is now a reduced rate of vehicle excise duty for vehicles that are on an island designated under the Vehicle Excise Duty (Designation of Small Islands) Order 1995, which lists a range of islands. It involves goods vehicles at up to 17,000 kg revenue weight normally kept at a base or centre on a small island having use of mainland roads, and goods vehicles at over 17,000 kg revenue weight normally kept at a base or centre on a small island where use of such vehicles on the mainland is subject to a 5 km distance restriction from a mainland port for the purposes of loading and unloading.
New clause 17 is intended to redefine mainland roads—roads where vehicles would be able to travel a greater distance. In my constituency, the operation of the exemption has given rise to some anomalies and inconsistencies. First, in Shetland, hauliers operating on the small islands of Yell, Unst or Fetlar, find that the port where they must arrive at the Shetland mainland, Toft, is 25 to 30 miles from the main town of Lerwick, and that there is nothing much at the port other than a ro-ro terminal. There are no loading or unloading facilities. Likewise, vehicles coming over from Whalsay and arriving at Laxo are some 20 to 25 miles from Lerwick.
In the northern isles of Orkney, the ro-ro ferry comes into Kirkwall, and, for the most part, islands-based lorries weighing more than 17,000 kg can do their business within 5 km of where they land. Those in the southern isles—specifically from Hoy, where I have received representations—come into the rural terminal of Houton. Again, there are no loading or unloading facilities there. Most then go to either Stromness or Kirkwall, the two largest towns on the main island of Orkney, which means that they must travel more than 5 km.
The purpose of the original exemption, which we support, does not apply to a number of lorries on some of the islands, because of the location of the port or terminal where they reach the main island. The purpose of the new clauses is to extend the exemption to lorries based on those small islands.
I raised this matter with the former Paymaster General, the right hon. Member for Wells. At that time, his concerns were that, if we accepted a much broader definition and allowed vehicles to travel much further on mainland roads, that could lead to abuse on the roads on mainland Scotland. I recognise that that was one of the reasons why the restrictions were made in the first place. I propose, therefore, that the new clause should apply only in the main island of Orkney, in the main island of Shetland and in Lewis and Harris. Because those are discrete islands, there is no chance of that sort of abuse arising.
The former Paymaster General also felt that there might be competitive disadvantages for hauliers based on the main islands of Orkney and Shetland—hence new clause 16, which would extend the lower rate of vehicle excise duty to all hauliers based on the main islands, as well as to those on small islands. Again, there are arguments for that, apart from the points that I have already raised. First, in my constituency, there is no designated trunk road in either Orkney or Shetland. The origin of vehicle excise duty was to reflect wear and tear on the road network. Some consideration might be given to the fact that a haulier operating on the Orkney or Shetland mainland, which has no trunk roads, has to pay the same as a haulier based in Birmingham who has immediate access to hundreds of miles of motorway.
Secondly, there is a practical point in terms of the companies based in the islands. There is little scope or opportunity, if a haulier's vehicle breaks down, to hire another vehicle. As a result, I am informed that many hauliers feel obliged to maintain a spare vehicle so that, if anything goes wrong, they have the capacity to carry on their business. Of course, that adds generally to their costs, because those vehicles have to be maintained, quite apart from being bought. In particular, if the vehicle excise duty is at the higher rate, that is another imposition and burden on those hauliers.
To address the practical situation, I understand that, if a lorry goes from mainland Orkney to the Scottish mainland, there are no tachograph requirements in the isles, but, if the lorry crosses the Pentland firth, a tachograph must be calibrated in Thurso. Therefore, the potential for abuse does not exist because, if lorries are exempted from vehicle excise duty and a special disc has been designed to cover those lorries, clearly, there will be a simple means of enforcing the exemption when the tachograph has to be calibrated.
In short, the purpose underlying the new clauses is to try to give some support to hauliers who are based in the islands. It is not easy to make a business flourish there and we are considering ways in which they can receive the exemptions, specifically with regard to those hauliers whose lorries arrive at a ro-ro terminal more than 5 km from the main towns.
I ask basically that hauliers in those islands be put on the same basis as was intended originally by the Government when they agreed the original amendment to the Finance Act 1995. More generally, it would make sense to extend the exemption throughout the main islands because that would help those hauliers, who have a range of additional costs, which are not faced by those who run haulage operations on mainland Britain.

Mr. Calum Macdonald: It will come as no surprise that I support the principles behind new clauses 16 and 17. I congratulate the hon. Member for Orkney and Shetland (Mr. Wallace) on raising the matter in that way. He gave the history of the origin of the exemptions. Although the Government in 1995 agreed to restore some of the concessions, that restoration benefited only half the lorries previously eligible for the exemption. As he pointed out, it has also left adrift some of the smaller islands, which the Government themselves intended should be part of the exemption.
Although this is an important matter for hauliers who are affected, it is worth making the point—I am sure that the hon. Member for Orkney and Shetland would concede


this—that the new clauses address only one aspect of the disadvantages that remote island communities face because of transport costs and difficulties. We need to consider the whole picture affecting the island economies to understand the significance of the issue.
It is clear that the single biggest handicap or disadvantage faced by island communities such as the Western Isles and Orkney and Shetland is their distance and remoteness not only from the mainland of Scotland, but, taking a wider economic view, from the markets of the whole of the United Kingdom and, indeed, of Europe. The costs imposed on businesses by transport costs and the costs that come indirectly from the difficulty of making transport connections have a significant impact on island businesses. That is the single biggest handicap facing the economy of the Scottish islands and the single biggest factor in producing consistently high unemployment rates, particularly in the Western Isles; Orkney and Shetland obviously have a special position because of the impact of the oil industry.
Those transport costs affect not just island businesses, but consumers. The price of everything is increased because of transport costs: the price of petrol, building materials and food—anything that consumers buy in the shops. Therefore, if we take the sum of those two effects on the economy—high unemployment and high prices—transport costs produce hardship and poverty in the island communities.
The Government can help to overcome those handicaps in many ways. Spending on general public services is among them, but one of the best ways that a Government can help is by targeting help and reducing overall transport costs and their effects on businesses and consumers in the islands. To do that effectively, we need, first, an accurate measure of just what those costs are and how they affect the islands' local economy.
The Scottish Office recently produced a report through some consultants on the effect of transport costs on the highland economy, but it was supposed to include the island economies as well and only one company was included in the report. Therefore, we need to have a specific study of the impact of transport costs on the Scottish islands. I recommend such a study both to the Government in place and to the Government in waiting. It would help to formulate a policy to tackle this problem.
Once we have an accurate measure of how the local economy is affected by those transport costs, the Government can work out how best to deploy their resources in the most targeted and cost-effective way to help the islands overcome the transport handicap. Vehicle excise duty is only one way in which transport costs affect the Scottish islands. The cost of ferry transport is obviously another important factor. Others include high air fares and the air passenger tax. All of those, in their different ways, affect the island economies. Therefore, we need to have from Government an overall view of the impact of transport costs and a strategic approach to working out the most cost-effective ways in which Government can assist to overcome that handicap.
I would like not simply a piecemeal approach, tackling specific aspects of the costs, but an overall strategic view. Although I support the principle behind the new clause, what we really need in the islands is an overall view. That is what we are looking forward to, after the election.

8 pm

Mr. Alistair Darling: The hon. Member for Orkney and Shetland (Mr. Wallace) is to be congratulated on raising the matter. It is quite clear that the concern affects many people living in the Scottish islands, and he is right to put down a marker for the future.
The hon. Gentleman wishes to extend the exemption that applies to some of the smaller islands but—as he rightly said—not to others, which causes all sorts of anomalies and resentment. Half the lorries might be covered, but half are not. The question is whether we extend the exemption to include all lorries and appropriate vehicles on the islands or whether it might be more appropriate to have a proper look at the whole system of support—direct and indirect—for island transport.
I agree with my hon. Friend the Member for Western Isles (Mr. Macdonald), who put forward a cogent and coherent case for a proper strategic look at the way in which the Government support island transport. The vehicle excise duty problem, to which the hon. Member for Orkney and Shetland referred, is only one part of an overall problem. My hon. Friend is right to draw attention to the transport costs faced on the islands—not only by hauliers and commercial travel but by those who cross the sea in private cars. The cost of going to the Scottish islands is much greater than that of crossing the English channel, for example. All of us who have ever attempted to take a car and family across the Minch, let alone a large lorry carrying freight, will know that transport costs impose a formidable burden. In addition, such costs have a substantial bearing on the competitiveness of island firms.
A strategic approach is clearly called for. I know that the Government have agreed to a further study—the first study that they carried out having been rather more limited than was desirable. My hon. Friend the Member for Western Isles will know that the shadow Secretary of State for Scotland has said that he will embark on a comprehensive review of Scottish Office spending. I can certainly undertake on his behalf that, as part of that study, we shall examine how the Government support transport to the Scottish islands—by both air and sea—and see how we can best assist the majority of individuals and businesses based there.
Such a strategic study is long overdue and marks the difference between us and the present Government, who have tended to regard such things, inasmuch as they ever think about them, in a very piecemeal way. We believe that an overall comprehensive approach is absolutely essential with regard not only to the new clause but to the amendment on air passenger duty, which we shall consider later. People living on the islands of Scotland clearly face specific problems. They rightly look to the Scottish Office in particular and Parliament in general to address them. If the Government will not do that, we certainly will.

Mr. Oppenheim: I have sympathy with the points made by the hon. Member for Orkney and Shetland (Mr. Wallace). He has fought a battle over a long period on this issue, with a certain amount of success. I am sorry that, certainly for the Government's part, I cannot offer him any further success this evening. However, I emphasise that there is quite a lot of sympathy for some of the points that he made. I shall briefly give the reasons why we do not think that the new clauses are acceptable.
The hon. Member for Orkney and Shetland argues that, on Orkney and Shetland, there are no trunk roads. Heavy goods vehicles can of course cause more wear and tear on smaller roads that are not necessarily designed to take them than on trunk roads, so quite a large cost is still involved. The reason why the islands were originally excluded is that the islands that were included were included for historical reasons. There is a danger of where to stop if a concession is made to one or two more islands. There are the small islands around Northern Ireland and the Isle of Wight—the list could go on. If one island got a concession, the next would lobby for a concession that—arguably—might be justified. The issue would become quite open-ended for any Government.
I did not find the point that the hon. Member for Orkney and Shetland made about some hauliers having to keep a second truck in case the first broke down because they could not rent a truck on the islands totally convincing in this day and age. Even fairly modern commercial vehicles are not that unreliable. The general points that he made about the difficulty of living on the islands and the importance of increasing employment opportunities and reducing cost penalties wherever feasible are, however, well taken, but I am not sure that the creation of further anomalies in the indirect tax system is necessarily the way in which to address them. The debate could be taken far wider into regional aid policy, European regional aid policy, and so on. I think that that is the way in which to address the issues rather than creating anomalies in the vehicle excise duty system.

Mr. Wallace: I am grateful to the Minister for the understanding way in which he has negated what I have sought to do. Will he address the point with regard to vehicles that come from islands that are designated as small islands but, due to almost an accident of geography, those over 17,000 kg have to go more than 5 km before they reach a landing point where they can do any business? Such an anomaly seems to defeat the purpose of the exemption.

Mr. Oppenheim: The hon. Gentleman makes a reasonable point, and we shall look at that particular anomaly. We have already looked initially at the matter. The fundamental problem is that the system would still be left open to abuse, to which hauliers, especially on the mainland, would object. There is an anomaly, but if there were a concession that vehicles could go more than 5 km, it could be abused in other directions—not particularly on the islands mentioned. That is a fair point; there is a particular problem and we shall certainly look at it. The hon. Gentleman is coming into the Treasury tomorrow for a meeting on another issue, so perhaps we can discuss the matter in more depth then, if that is convenient for him.
The comments of the Chief Secretary were absolutely marvellous—very new Labour. New Labour does not make spending pledges, it makes report pledges. We heard the usual story: lots of hints, but no firm pledges.

Mr. Eric Martlew: The hon. Gentleman said that my hon. Friend the Member for Edinburgh, Central (Mr. Darling) is the Chief Secretary.

Mr. Oppenheim: Sorry, shadow Chief Secretary. We heard the old story—all talk and no action. If the

hon. Member for Edinburgh, Central (Mr. Darling) seriously thinks that, if Labour were to get into office, all the little hints and nudges about increasing spending here and there would be fulfilled, he and his constituents are dreamers.
We costed all the pledges very conservatively in the winter—and they came to £30 billion. What happened? The shadow Chief Secretary said, "That is nonsense. We have potentially an iron Chancellor. He is not going to go rusty or exceed Tory tax and spending targets." I find it absolutely incredible that, after 18 years in opposition, the unique selling proposition of new Labour, after all the focus groups and spin doctors—

Mr. Darling: rose—

Mr. Oppenheim: If the hon. Gentleman will sit down a minute—is that the Tories have made such a mess of things that it is going to stick to all their policies.

Mr. Darling: I thank the hon. Gentleman for giving way, since I assume that that is what he is going to do. It is a pity that, when discussing a matter that is important to many thousands of people living in the Scottish islands, he should depart from—indeed, not attempt to answer or come up with a constructive solution to—the points made by my hon. Friend the Member for Western Isles (Mr. Macdonald) and the hon. Member for Orkney and Shetland (Mr. Wallace). He surely must accept that, given that the Government support to a greater or lesser extent some aspects of transport in the Scottish islands and given that there are anomalies, any Government should be prepared to consider them and see whether there is a better way in which to support such transport. Nobody is in the business of writing blank cheques or making promises that cannot be delivered. He admits that there is a problem. Rather than making silly and inaccurate points, might he not do better in his remaining days in the Treasury dealing with some of the problems?

Mr. Oppenheim: The hon. Gentleman clearly did not listen. I did my best to answer the points made by the hon. Member for Orkney and Shetland. I also said that we would discuss them further tomorrow. Some of his points were invalid but some were valid. There are anomalies. I said that the new clause was not the best way in which to deal with them. I offered to discuss the genuine anomalies with the hon. Member for Orkney and Shetland.
It is legitimate for me to criticise the total dishonesty of Labour's policy, which is constantly to drop hints that people need only elect Labour and help will consequently be given here and there. However, whenever Labour Members are pinned down on their policy, they say, "No; we'll stick to the Government's tax and spending commitments." It is legitimate for me to make those criticisms, having dealt reasonably fully with the legitimate points made by the hon. Member for Orkney and Shetland and offered him a meeting on the subject. On that basis, I hope that he will withdraw the motion.

Mr. Wallace: We achieved the original concession from the Government in the Finance Act 1995 by a remarkable cross-party consensus involving the support not only of the Conservative party, the Labour party and the Liberal Democrats but of the hon. Member for North Antrim (Rev. Ian Paisley), who made a very lively speech.
I have no intention of making this a partisan matter. For the Treasury, the amounts involved are relatively small, and I should certainly welcome any review, from any quarter, of the islands' transport. I think that, tomorrow, the Minister and I can usefully discuss the matter further. I am glad that he realises that there are some genuine anomalies. As I do not intend to push the matter to a Division, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Clause 7

ULTRA LOW SULPHUR DIESEL

Sir Michael Spicer: I beg to move amendment No. 27, in page 6, line 30, leave out '(6)' and insert '(7)'.

Madam Deputy Speaker (Dame Janet Fookes): With this, it will be convenient to discuss the following amendments: No. 28, in page 6, line 39, at end insert—
'(7) "low cancer-risk part-renewable blended diesel" means fuel of the description in Schedule 2B to this Act'.
No. 29, in page 7, line 4, at end insert—
'() £0.3416 a litre in the case of low cancer-risk part-renewable blended diesel;'.
No. 30, in page 7, line 11, at end insert
'low cancer-risk part-renewable blended diesel or'.
No. 31, in page 7, line 15, after first 'of, insert
low cancer-risk part-renewable blended diesel or'.
No. 32, in page 7, line 23, after 'not', insert
'low cancer-risk part-renewable blended diesel or'.
No. 33, in page 7, line 30, at end insert—
'() after the definition of "light oil" there shall be inserted the following definition—
low cancer-risk part-renewable blended diesel" has the meaning given by section 1(7) above;'.
No. 35, in page 8, line 4, after '(a)', insert
low cancer-risk part-renewable blended diesel or'.
No. 36, in page 8, line 18, after 'not', insert
low cancer-risk part-renewable blended diesel or'.
No. 37, in page 8, line 22, at end insert—
'() After Schedule 2A to that Act (mixing of heavy oils) there shall be inserted the following Schedule—

SCHEDULE 2 B

Low CANCER-RISK PART-RENEWABLE BLENDED DIESEL

1. Low cancer-risk part-renewable blended diesel is fuel which consists of—

(a) a blend of heavy oil containing not less than 22 per cent. by volume of kerosene which when blended conforms to the specification in paragraph 2; and
(b) not less than 3.8 per cent. and not more than 15.0 per cent. by volume of methylester which is derived from rapeseed oil which contains not more than 0.02 per cent. by weight of free glycerine and which conforms to such other specifications as the Commissioners may direct.

2. The specification referred to in paragraph 1 is a blend of heavy oil—

(a) of which not less than 60 per cent. by volume and not more than 72 per cent. by volume distils at a temperature of 250 degrees celsius;
(b) of which not less than 90 per cent. by volume distils at a temperature of 290 degrees celsius;
(c) which has a density at 15 degrees celsius of not less than 813 kilograms per cubic metre and not more than 819 kilograms per cubic metre;
(d) which has a minimum cetane number of 49;
(e) which contains not more than 0.0015 per cent. by weight of sulphur;
(f) which contains not more than 11.25 per cent. by volume of aromatic hydrocarbons and not more than 0.05 per cent. by volume of polycyclic aromatic hydrocarbons (containing three or more carbon rings); and
(g) which conforms to such other specifications as the Commissioners may direct.".'.

Sir Michael Spicer: I should say that I am president of the Association of Electricity Producers. I am not quite sure what that might have to do with amendments on fuel, but I have been advised to make that declaration, just to be absolutely safe. I am raising the issues on behalf of a constituent, who has asked me to do so.
The amendments would give a small additional tax incentive for the use of diesel which is blended to reduce a specific group of pollutants—polycyclic polyaromatic hydrocarbons, known as PAH—which are suspected of inducing cancer. Later this year, the Department of the Environment is expected to classify PAH as a priority pollutant.
In this instance, the pollutant is attacked by blending diesel fuel with methylester, which is produced from rapeseed. Therefore, as well as attacking emissions suspected of being cancerous by reducing PAH compounds by a factor of 60, the blended fuel has an interesting renewable element. My amendments treat that low-cancer-risk compound in precisely the same manner as the Bill treats ultra-low-sulphur diesel in clause 7—all my amendments relate to clause 7—and simply tag on an additional exemption to the standard rate of tax.
In a letter dated 10 December 1996 to my constituent, Mr. Charles Fraser, of Dove International Ltd., the Treasury rightly expressed concern on two matters. First, it states:
The objective
of clause 4
is to secure improvements in air quality, particularly but not exclusively in urban areas".
I completely agree with the objective of improving air quality, and my amendment, like clause 7, simply furthers it.
Secondly, the letter states:
it was not our intention to favour any particular brand or formulation of fuel over another.
That is a perfectly reasonable constraint on the Bill. That intention is also why my amendment No. 37—a proposed schedule 2B—has been devised very precisely to define fuel generically, in terms of its low-cancer-risk effect. There is a generic element—certainly not a brand element—to the proposal, and it is based not on any particular compound but on the generic effect of reducing diesel's potentially dangerous emissions.
Therefore, there is no real difference between my proposals and the Government's proposals in clause 7 on low-sulphur fuel. My amendments build on the Government's proposals, thereby enhancing them. I therefore very much hope that, on reflection, the Minister will be able to accept them.

Mr. Oppenheim: I am entirely at one with my hon. Friend the Member for South Worcestershire (Sir M. Spicer) in focusing on the need to reduce air pollution. An important part of the Budget's strategy has been to try to provide fiscal advantage to those using low-polluting fuels, such as low-sulphur diesel and liquid petroleum gas. We feel that one of the greatest detriments to people's quality of life, particularly in urban environments, is smoke emanating from vehicles. Much of that smoke is unnecessary, particularly because it comes from badly maintained diesel engines.
The changes to the tax system to reduce tax on low-sulphur diesel by 1p, and the very significant tax reductions on liquid petroleum gas, provide real opportunities for commercial vehicle owners and fleets to reduce emissions over the next few years. Those changes were made with a great amount of support from all parties, and because they were pushed in successive Budgets by hon. Members from both sides of the House. I was pleased to make some progress on that matter.
8.15 pm
We do not feel that the amendments are the appropriate way forward, because of the cost. By concentrating available funding on low-sulphur diesel fuel—which is relatively cheap to produce compared to the fuel mentioned by my hon. Friend the Member for South Worcestershire—we will be able to maximise the benefit.
The problem with the fuel produced by Dove, which is a mixture of refined rapeseed oil and low-sulphur diesel, is that it is much more expensive than conventional low-sulphur diesel, and does not provide a perceptible gain in emissions. The fuel's extra production cost is about 3p to 4p, and it would require a subsidy of about 2.7p to bring it into line with regular low-sulphur diesel.
There is no clear evidence that Dove fuel is any less carcinogenic than other low-sulphur diesel fuels. That was another point in our consideration of the matter.

Sir Michael Spicer: I understand the point about cost, but might it not be worth considering the matter—not now, but later—in relation to the money spent on renewable energy that does not necessarily produce a beneficial effect on the environment? In those terms, one might reconsider a form of renewable energy that potentially does have a very beneficial effect on the environment. In future, could not the matter be considered within the context of renewable energy and beneficial effect on the environment?

Mr. Oppenheim: I accept my hon. Friend's point that we must consider all fuels of that type. The problem with the fuel he has mentioned is that it is significantly more expensive than other low-sulphur fuels, without offering significant benefits. Therefore, from the point of view of

the taxpayer and the environment, it would be wrong to concentrate funding on one fuel when others would be more cost-effective, and would achieve the same, and possibly better, results.
If the cost gap can be narrowed, there may be an opportunity to re-examine the matter. We will always keep an open mind on it. However, my hon. Friend the Member for South Worcestershire should realise that the fuel is produced partly because of the common agricultural policy. Particularly in France and in Italy, the policy is to reduce rapeseed surpluses by refining some of it into fuel.
In the long term, once technology improves and costs are reduced, it may be a feasible solution. We have not yet reached that stage, although I can certainly give my hon. Friend an absolute assurance that we will keep an open mind on the issue. If in future the fuel is a cost-effective way in which to reduce emissions, we will certainly reconsider it.

Sir Michael Spicer: When my hon. Friend throws the CAP at me, I feel a little on the defensive.
I do not think that my constituent will be particularly pleased with my hon. Friend's response, although he has opened the door for the matter to be thought about in future. It has been useful for my constituent to have the opportunity for the matter to be aired on the Floor of the House. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 9

RATES OF AIR PASSENGER DUTY

Mr. David Trimble: I beg to move amendment No. 7, in page 8, line 38, leave out from beginning to end of line 3 on page 9.

Madam Deputy Speaker: With this, it will be convenient to discuss amendment No. 22, in page 9, line 3, at end add—
(4) Subsections (1)—(3) of this section do not apply for flights to and from airports in areas in receipt of Objective 1 funding from the European Union.'.

Mr. Trimble: The amendment would leave out clause 9, which doubles air passenger duty. When air passenger duty was introduced, we thought that it was misconceived. We do not need provisions that increase the cost of air travel. In the British Isles in particular and western Europe in general, we need the cost of air travel to come down.
I have in my pocket the airline ticket that I used to get me over here this afternoon. It cost £247 for a return fare. In my briefcase, I have a return ticket to take me to North America tomorrow morning, where, no doubt the Government will be glad to know, I shall be away for a week. That ticket to Washington and back cost £209. That is a ridiculous state of affairs. We need lower fares, not just for the comfort of those going on holiday—I am not doing that tomorrow, of course—but for business.
We in Northern Ireland are particularly conscious of that need. Unlike those hon. Members who fly to Glasgow or Edinburgh, we have no alternative—we fly or we do not travel. Taking a boat and then a car or a train is not a realistic alternative for business users. It is all right for


holidaymakers. When I go on my holidays, I go by car and boat, but for business purposes that is not feasible. Air travel is essential for business. I have not bothered to do any studies on the matter, but the fact can be seen by looking around at people who travel on aeroplanes. Most of the traffic is business travel. The duty is penalising business. That is an important consideration.
One must also consider the impact on private citizens. The Government may have thought that the duty—introduced at £5 and now increased to £10—was a comparatively small amount in relation to ticket prices. In relation to the ticket that I have here, it is a small percentage sum, but there is a range of prices. For those who are planning family travel on cheaper fares, the duty is quite hefty in percentage terms. I expect that the hon. Member for Banff and Buchan (Mr. Salmond) will elaborate on that, considering the impact of the duty on short-hop journeys to the Scottish islands. A £l0 duty on a £50 fare is a significant extra cost, and an unfair burden.
We considered tabling amendments to exclude Northern Ireland, because we are uniquely dependent on air traffic. We could have considered amendments to exclude areas such as the islands of Scotland, which are also uniquely dependent on air traffic. However, we preferred to table an amendment on the general provision. The tax is bad. We do not want to single out one part of the kingdom against others. We prefer to leave out the clause. We would like to repeal the duty, but at least let us not make it worse.

Mr. Salmond: I support amendment No. 7, and shall speak to amendment No. 22, which would provide a low-cost alternative to the proposal of the hon. Member for Upper Bann (Mr. Trimble). It would concentrate relief on objective 1 areas of the United Kingdom—the highlands and islands, Northern Ireland and Merseyside. If the Government have any sympathy for the arguments, they might at least consider this low-cost alternative.
In Committee, the Exchequer Secretary was sympathetic to the arguments for the highlands and islands not undergoing the doubling of air passenger duty. However, he doubted whether the duty was having a substantial effect on the area. Rather than giving him my arguments, I should like to read a letter that appeared in the Financial Times in December from a number of people who have a deep knowledge of the highlands and islands and a deep interest in the economy of the area.
The letter said:
Air services to and from the islands of Scotland are an essential part of the transport structure of the region. The natural boundaries of mountain and sea make air travel a social and business necessity and, in many instances, a lifeline service with no acceptable alternatives in road and rail.
It is our view that the imposition of the Duty in November 1994 was inequitable and has had far reaching detrimental repercussions to island life and the local economy. In adding to the cost of travel, the duty is contrary to the special case presented by the government for European structural funds to achieve lower transport costs through Objective 1 status. The lower than projected passenger numbers on these lifeline services is already jeopardising some routes and frequencies and the reduction expected as a result of the doubling of duty will increase subsidies already paid by the Scottish Office with the net tax take to the Exchequer being reduced.
While the amount of duty to be raised from November 1997 by the Exchequer nationally from the duty will be about £700 million in a full year. the amount collected in the Highlands and

Islands will be less than £2 million. However, the consequences of the duty in the Highlands and Islands are greater because the proportion of tax is four or five times that on fares in other parts of the UK.
Although in national terms, therefore, the Highlands and Islands tax take is insignificant, to the region it represents a very substantial penalty which will be detrimental to the future growth of the area's economy.
That letter was signed by Alan Wilson, the chief executive of the Scottish Council (Development and Industry), and supported by Air UK, Highlands and Islands Airports, Highlands of Scotland tourist board, Loganair, the Orkney Islands council, the Shetland Islands council, the Highland council and the Western Isles council. All those organisations have a deep interest in the development and welfare of the highlands and islands of Scotland. Their arguments should be taken more seriously than the Minister was prepared to do in Committee.
I want to stress three arguments. The hon. Member for Upper Bann put his points well. Northern Ireland is particularly dependent on air travel, and so are the highlands and islands of Scotland. There are lifeline services for which there is no acceptable alternative. It was remiss of the Government not to consider beforehand the impact on those areas of doubling the duty, which is damaging to the local economies.
Levying the duty at two flat rates brings about the extraordinary anomaly of charging £20 on a business class fare to Japan, which costs many hundreds of pounds, perhaps even thousands of pounds, and £10 on a fare from Inverness to Stornoway, which costs a mere fraction of that. The charge is therefore proportionally much greater.
The hon. Member for Upper Bann pointed out that the fare from Northern Ireland to London was more than that to cross the Atlantic. People in the islands of Scotland will rightly point out that many fares are already too high in relation to the distances travelled. There are some extraordinarily high fares at the moment. Is it not all the more anomalous to impose a flat-rate duty on vulnerable communities?
Secondly, amendment No. 22 refers to objective 1 areas. Do the Government not consider it somewhat anomalous on the one hand to identify those areas as objective 1, with special help for transport infrastructure and other facilities, while at the same time imposing national taxation, without any differential, on the self-same areas?
In Committee, the Exchequer Secretary said that he thought that some of the fares in the Western Isles were already supported. I do not know whether he was sure about that. Yes, some fares in the highlands and islands are supported. Is it not therefore anomalous not to take that into account when considering the taxation system?
My third argument is about the high fare structure. For many years, the routes from Edinburgh and Glasgow to London have been among the most profitable for the operating companies. This year, British Airways shuttle flights from Edinburgh and Glasgow to London were among the most profitable of any of its operations anywhere in the world. In recent years—indeed, recent months—we have had the development of low-cost flights. Easyjet, Ryanair and other airlines have come on to some of the routes and started to put downward pressure on charges. It is working against that grain of


encouraging competition to impose a flat-rate charge. The impact will be felt hardest by the airlines that are promoting economy tickets.
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For all those reasons, I hope that the Exchequer Secretary will reconsider. If he is not prepared to junk the whole taxation hike—I do not know whether it is Tory tax increase No. 22, 23 or 24 since the last election—perhaps he might like to consider the low-cost alternative of looking at objective 1 areas, which in fiscal terms would cost perhaps one tenth of the measure suggested by the hon. Member for Upper Bann.
I hope that my suggestion will attract some sympathy from both sides of the House. After the debate on energy-saving materials, I have no great expectation that the Labour Front-Bench team will be attracted to it, beyond promising a survey or a report. That is a great pity, because I suspect that hon. Members from every other Opposition party will be in the Lobby to support one, or perhaps both, of the amendments.
The Government have levied an increase in taxation without fully taking into account the consequences for certain areas that are particularly dependent on air travel and they were wrong to do so. It is the job of the Opposition—a real Opposition—to oppose that increase and to join in opposing it, rather than sitting, preparing for government and mentally placing themselves on the other side of the Chamber.
Last year, or perhaps a few years ago, in a debate in this Chamber, the hon. Member for Dundee, East (Mr. McAllion) said that the Labour party had become the national party of Scotland. He meant not that it had become the national party, but that it had Members and prospective parliamentarians from the length and breadth of the country. I give the Labour Front-Bench team a warning. Unless Labour is prepared to show some identity with and support for the fragile communities in the highlands and islands of Scotland by supporting this sort of amendment, or at least giving a firm commitment in financial terms to an alternative proposal, it will be cleared out of those areas come the general election.

Mr. Wallace: Air passenger duty certainly generated considerable controversy in the islands when it was first introduced in November 1994 and in the debates leading up to the enactment of that Finance Bill.
I cannot support the amendment tabled by the hon. Member for Upper Bann (Mr. Trimble), inasmuch as I could not support suddenly losing that amount of revenue by removing the tax. In saying that, I am sympathetic towards the arguments that motivated him to move the amendment. My right hon. and hon. Friends will support the amendment tabled by the hon. Member for Banff and Buchan (Mr. Salmond), although even that has some shortcomings. I do not intend any hint of criticism for the Chair, but my amendment was more specific and dealt with the islands alone. There is a particular problem in the islands.

Rev. Martin Smyth: Does the hon. Gentleman recognise that the mistake was to impose the tax? Is he also prepared to recognise that it is a tax on

children, whose fares are low? At a time when we are trying to attract more tourism to the United Kingdom and the pound is strong, it is also a tax on tourism, so the tourist industry is being threatened as well.

Mr. Wallace: I agree about it being a tax on children and I was going to refer to that. As a generality, however, I find it one of the more difficult taxes to oppose—it is more a case of the details of its imposition. Among European Union countries, we probably have the lowest rate of air passenger duty, so I do not think that it produces a competitive disadvantage. I am concerned about its imposition on vulnerable communities and routes.
In October last year, British Airways withdrew its services on routes in the highlands and islands, claiming that it could no longer make a profit—indeed, it claimed that it had never made a profit—and that they were loss-making routes. The services are now being run by British Regional Airlines, which I am sure will try to make them profitable and successful.
In being asked to apply air passenger duty to routes serving the islands, we are being asked to tax a loss-making operation. Highlands and Islands Airports is subsidised by the Government. It reckons that, as a direct result of the duty that came into effect in November 1994, it has identified a less than projected increase in air travel in the region.
On the one hand, we are taxing loss-making routes—that could lead to greater subsidies being required for Highlands and Islands Airports—and on the other, we are paying a subsidy. The hon. Member for Upper Bann referred to the cost of about £247 for a return fare from Belfast to London. I do not have a ticket on me, but it costs approximately £480 or £490 for a return fare from my constituency to London. That is a phenomenal cost, and the Government now want to place an additional tax on top of that.
Businesses in the islands operate on pretty slim profit margins because of where they are. One cannot alter facts of geography, but one can try to minimise the disadvantages. One way to do so is to ensure that no additional burden—

Mr. Salmond: If my memory serves me right, in 1979 the Tory manifesto referred to the cost of travel to and from the Scottish islands, promising a range of measures sharply to reduce that cost, including road equivalent tariffs.

Mr. Wallace: The hon. Gentleman remembers correctly. I had the misfortune to hear the then Secretary of State for Scotland, now the noble Lord Younger of Prestwick, announcing the retreat from road equivalent tariff. That is just an example of the greater burdens that exist.
Parents who live in Orkney and Shetland will pay £30 in additional taxation to take a child to hospital in Aberdeen. I have received parliamentary answers showing that the additional cost to the Orkney and Shetland health boards runs into tens of thousands of pounds as a result of the additional taxation that will be levied.
In Committee, the Exchequer Secretary said that he was not unsympathetic to the views being put forward. Indeed, in a letter to me on 19 February, he repeats that he is
sympathetic to the issues raised about the lifeline nature of some services in the Islands",
but thinks that the exemption from air passenger duty is not necessarily the way to deal with that. He goes on:
in recognition of the valuable service provided by air transport to
the Scottish Islands communities, the Government decided that subsidy was the best way forward.
I have rarely heard that said by a Conservative Minister, but it is a fact of life.
Additional funding was made available to enable the Western Isles council for example to offset the effects of APD. I think this is a more effective way of granting relief as subsidies can be better targeted to routes where it has been objectively shown that help is needed to keep them in existence.
The subsidy is very limited: there is certainly no subsidised route between my constituency and the Scottish mainland. Again, I have to meet the Minister tomorrow with the hon. Member for Western Isles (Mr. Macdonald) to go into the matter in more detail, but it would be interesting to hear what he has in mind with regard to greater targeting of support to vulnerable routes.
A paper prepared by the Scottish Office for the most recent meeting of the Highlands and Islands Convention in Stornoway said:
The Government recognise, however, the concerns about APD are real and that commercially fragile routes in the Highlands and Islands are under threat. The Government are giving the matter the fullest consideration.
I welcome that consideration, but I hope that it will be productive.

Mrs. Ewing: That viewpoint has been underpinned by the Scottish Council (Development and Industry) and by the tourist authorities and many business organisations, as well as the councils in the highlands and islands. The Government should take that on board: not only members of political parties make that point, but people across the entire sphere of interests in the highlands and islands.

Mr. Wallace: The hon. Lady is right, as was the hon. Member for Banff and Buchan, to give examples of the range of support for opposition to the tax.
We have some reservations about amendment No. 22, although it is true that there is a contradiction between having objective 1 status to try to eliminate the disadvantages of peripherality, and imposing a tax that exacerbates them. Removing the tax from Liverpool but leaving it in Manchester would not, however, be readily understood in the north-west of England. The amendment is therefore in some respects unsatisfactory, but it is nevertheless the best vehicle we have with which to register the point, and my party is prepared to support it.

Mr. Phil Gallie: I do not entirely identify with all the issues of the islands, so I leave it to others to make representations about them. It amazes me that there are not more hon. Members from the central belt of Scotland in the Chamber tonight, because the tax has a significant effect on flights from central Scotland.
One of the Government's recent successes has been the introduction of a range of low-cost choices for flights from Scotland to England: there is a £29 single fare from

Prestwick to London, or about £59 return. If the hon. Member for Upper Bann (Mr. Trimble) wants to find a cheaper way of getting to London from Belfast, I suggest Gill Air at £56 return to Prestwick, followed by Ryanair at £59 to London. If he does that, however, tax will be charged twice because of the change of airline; that does not seem fair.

Mr. Wallace: That is an important point, about which I often get complaints from constituents. My understanding is that, if the issuing travel agent can link the two tickets and show that they apply to a single journey, and if the second flight takes off within six hours of the previous one arriving, air passenger duty should be levied only once. The Minister may want to confirm that, but it is something that should be drawn to the attention of travel agents.

Mr. Gallie: That is an interesting point, but it is my understanding that, if people change airlines, they lose that option.

Mr. Oppenheim: The hon. Member for Orkney and Shetland (Mr. Wallace) is correct: it makes no difference whether it is one airline or two; if it is one journey, even though the flight is broken because of connections, the tax is levied only once, and not at a double rate.

Mr. Gallie: I am relieved to hear that, because travel agents in my constituency certainly felt that on a journey from, say, Prestwick to London, connecting with an onward flight to the United States, two charges would be levied. If that is not so, I have little to argue with my hon. Friend about.

Rev. Martin Smyth: The hon. Gentleman should bear it in mind that the Minister was talking about a through fare. People who fly into London or Manchester and spend a few days there before flying on to Glasgow, Edinburgh, Inverness or the north-east of England would be subject to double taxation.

Mr. Gallie: I have asked my hon. Friend for further clarification on that point, and I thank the hon. Gentleman for his comment.
It seems to me that a percentage rate would be more appropriate than a flat rate. I have no difficulty with the idea of airport taxes, as they seem to apply in every other country, and, as the hon. Member for Orkney and Shetland (Mr. Wallace) said, our rate is one of the lowest. That apart, there is an unfairness with respect to low-cost flights. I ask my hon. Friend either to address that point today or to give an undertaking to do so in the future.

Mr. Macdonald: I well remember some of these details from a Finance Bill some years back, when the tax was first introduced and we tried to explore some of its complexities. I support what the hon. Member for Ayr (Mr. Gallie) said about the value of considering a percentage, VAT-style approach to the duty, especially if it continues to increase.
I thank my hon. Friend the Member for Edinburgh, Central (Mr. Darling) for his undertaking to take an overall view of the impact of transport costs on the


economy of the islands. This debate ties in neatly with a previous debate on vehicle excise duty, and we need an overall view of all such costs and their impact on the economy of the islands if we are to have a strategic approach to targeting assistance in the most effective way.
Three years ago, when the tax was first introduced, I moved an amendment in Committee in terms that were extremely close to those of amendment No. 25, tabled by the Liberal Democrats. That amendment has not been selected for debate, for what must be good and proper reasons, but I regret that, because I believe that it represents the right approach to the issue. If we are to tackle the disadvantages facing the Scottish islands—it is notable that all those who have spoken so far have emphasised the position of those islands as compared with other parts of the United Kingdom—we must target support and assistance in a proper, cost-effective way; so I would have been happy to support amendment No. 25, had it been selected.
I support everything that the hon. Member for Orkney and Shetland (Mr. Wallace) said. He gave much background about how this will affect the Scottish islands, and explained that airline routes are essential to them.
It is worth emphasising that the public sector is a big user of the airline routes. The measure affects business people and ordinary consumers, but it also affects the public sector, and especially local authorities and health boards. Perhaps nothing more clearly illustrates the lifeline nature of the routes than the fact that they are used so extensively by local health boards, not only to carry officials around but to transport patients from island to mainland. No other health board in the country flies patients to hospital for treatment, but in the islands, it must be done; that emphasises that the airline routes are essential.
Although I understand at least part of the motivation behind the selection of amendments and the remarks made about them, I fear that they go too wide to tackle the problem specific to the Scottish islands. Amendment No. 22 is not only too wide, but probably unworkable. It is not sensible to link exemptions to objective 1 status, because its lifespan is limited. In two or three years, that status will be reviewed, and it is likely that the highlands and islands will not retain it.
An exemption made to help the region could end up missing its target. Merseyside could continue to enjoy objective I status and an exemption but the highlands and islands could be excluded. That would be absurd. It is not the outcome that we are trying to achieve. More sensible is the suggestion of my hon. Friend the Member for Edinburgh, Central for a proper strategic approach to the range of problems that are tied up in the issue. We can then target help where it is most needed.

Mr. Darling: As my hon. Friend the Member for Western Isles (Mr. Macdonald) said, this debate follows on from that on vehicle excise duty. I want to deal with the two amendments separately. Amendment No. 7 was moved by the hon. Member for Upper Bann (Mr. Trimble). The difficulty is that it deletes all the revenue brought in by air passenger duty, which would amount, when fully implemented, to £415 million. I appreciate that for him and his party, and for the

nationalists, that is not their problem but somebody else's. The hon. Member will recognise that, under the present Government or a future one, if the House deleted £415 million of revenue, all other things being equal, the money would have to be recovered from elsewhere. Some of that money would be spent in Northern Ireland. The hon. Member has no doubt reflected on that; perhaps he will say where he proposes to make good the loss of revenue were clause 9 to be wholly removed.
The hon. Member for Banff and Buchan (Mr. Salmond) said, in his usual sneering way, that the problem with Labour is that we might be preparing for government. It has occurred to us that it is possible that, in a few weeks, we will be elected to govern the country. That means that here are constraints on us that are not visited on him.

Mr. Oppenheim: Will the hon. Gentleman give way?

Mr. Darling: In due course. I understand that the hon. Member for Banff and Buchan leads a party that vehemently opposes Labour and that he must take every opportunity to criticise what we do or propose.

Mr. Salmond: Will the hon. Gentleman give way?

Mr. Darling: In a minute. Were clause 9 deleted, some £415 million would be lost to the Revenue. All other things being equal, that money would have to be recovered.

Mr.Oppenheim: rose—

Mr. Darling: I shall give way to the hon. Member for Banff and Buchan first, because I referred to him in critical terms. The courtesies of the House, as the Minister might just grasp, mean that I should therefore give way to him.
Were amendment No. 7 carried, a traveller going to New York on Concorde would get the same benefit as someone travelling from Stornoway to Glasgow or from Belfast to London. It would therefore be a mistake to support amendment No. 7, but I accept that the hon. Gentleman and others need not concern themselves with such problems, because their position is different from ours.

Mr. Salmond: The hon. Gentleman should be careful. The last time he was at the Dispatch Box describing a Scottish National party move as a cynical ploy, it was our proposal to reduce VAT on fuel from 8 to 5 per cent. Within 10 months, he was trying to explain why that was not a cynical ploy by the Labour party. Does he expect to be at the Dispatch Box suggesting something like what we propose in the near future, or can he rule out any help for the highlands and islands, Northern Ireland or anywhere else?

Mr. Darling: I shall disappoint the hon. Gentleman in two respects. I am glad that he raised the other point, because I am happy to deal with it. The hon. Gentleman will recall that, when the Labour party tabled an amendment to stop VAT on gas and electricity going up to the full 17.5 per cent. rate, the arithmetic of the House meant that it was necessary to win support not only from Opposition parties but from rebel Tories. The nationalists,


as ever, wanted to get in on someone else's activities; they tabled an amendment to go one better than us that would have reduced VAT to 5 per cent. I thought, and I think that I was right, that it was opportunist to table such an amendment then. The argument before the House was whether VAT on gas and electricity should be at 17.5 or 8 per cent. I understand why the hon. Gentleman does this. The whole stance of the nationalist party is to—

Madam Deputy Speaker: Order. Reference in passing to other matters is all right, but this is taking too long. I would prefer the hon. Gentleman to return to the main subject.

Mr. Darling: I am happy to do that, because I was about to come to the opportunism of the nationalists in respect of the present amendment. I have a suggestion more helpful than amendment No. 22, tabled by the hon. Member for Banff and Buchan, with which I have not yet dealt.
Some parties claim that it would be a great step forward if the Government were defeated on amendment No. 7, but £415 million is a lot of money. Although other Opposition parties do not have to concern themselves with this problem, we have to concern ourselves with the possible loss of revenue and with a problem that any future Government will have to face: dealing with the economic situation that we actually inherit, not one that we might like to inherit.
The hon. Member for Banff and Buchan wants to exempt people who travel to and from airports covered by objective 1 status. The problem is that objective 1 funding is to be reviewed, starting this year and coming into effect from 2000; so we do not know at this stage which areas may be covered. I agree with the hon. Member for Orkney and Shetland (Mr. Wallace) that it would be hard for people living in Manchester to find that Liverpool airport was covered but Manchester airport was not. I understand exactly why the hon. Member for Banff and Buchan included objective 1—it covers the highlands and islands and, by a happy coincidence, it also covers the area represented by the Ulster Unionists.
The Labour party, possibly together with some Conservative Members, recognises the problems associated with highlands and islands flights. As my hon. Friend the Member for Western Isles said, these are lifeline services, especially for health. They are a much quicker way of reaching other parts of Scotland, the United Kingdom and Europe. Ferry travel can often take hours and sometimes days to cover the same distance.
The hon. Member for Banff and Buchan said that we are talking about only £2 million. Supposing we had that £2 million; we would then have to decide whether to use it by forgoing airport passenger duties in the highlands and islands or whether to use a similar sum to subsidise, for instance, freight going to and from the islands. All the transport costs involved in transport between the highlands and islands and the rest of Scotland need to be looked at.
I therefore believe, as do the Government to some extent, that we need to examine how best the Government can support air and sea transport to and from the islands. The whole issue needs to be looked at strategically to determine how best we can assist the islands with the resources available to us. That is far more constructive than looking at any one item in isolation.

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Mr. Wallace: I hear what the hon. Gentleman says, and of course I welcome any review. What worries me is that the £1 million or £2 million at stake is money that would go straight to the Treasury, whereas a freight subsidy of up to £3 million would come out of the Scottish Office bloc grant. Is the hon. Gentleman saying that that bloc grant would be inflated to allow directly for transport support for the highlands and islands, or does he mean that, if the money is to be provided, something else for Scotland will have to be cut?

Mr. Darling: I am not saying that at all. Whether the money goes to the Treasury or comes from the Scottish Office bloc grant, it will still be a sum within the total available to central Government to spend—

Mr. Malcolm Bruce: Is that a commitment?

Mr. Darling: The commitment to a review is of course a commitment. I do not mind being criticised by anyone for my party's reluctance to make promises unless we know that we can deliver on them. [Interruption.] The Minister seems to be greatly exercised by that remark. He should perhaps reflect on the fact that one reason his party is in such deep trouble is that it made promises at the last general election that it did not keep. We will not get into that position—

Mr. Oppenheim: The only promises the hon. Gentleman is prepared to make are to stick to Tory policies—after 18 years in opposition.

Mr. Darling: Madam Deputy Speaker, you would doubtless rule me out of order if I listed the many areas where there is a clear difference between us and the Government. One of them is that we will not make promises unless we know we can deliver on them—indeed, that is a big difference between Labour and the Conservatives.
Another difference, related to these amendments, is that we have always recognised that the highlands and islands of Scotland have particular transport problems, but those problems are not satisfactorily dealt with by the sort of promises that some of the small parties make, knowing that they will never be in a position to keep them. Nothing is more calculated to increase disillusionment among the public than political parties making promises that they know they will never have to deliver.
There is clearly a problem in this area at which we need to look, but I am not giving any commitments and I will not do so unless I know that we can stick to them. The points raised by several hon. Members, particularly by my hon. Friend the Member for Western Isles and the hon. Member for Orkney and Shetland, have been argued positively by representatives of the island communities who know what the problems are and who have come up with constructive ways of dealing with them.
I make no apology for the fact that Labour will not support amendment No. 7. Perhaps we will hear how the money is to be made good; the hon. Members who have tabled the amendment have to reflect on the fact that the revenue would have be made good from elsewhere and


that some of it would find its way to their own constituents. If they cannot answer that question, they should not have tabled an amendment of this nature.

Mr. Oppenheim: All hon. Members on both sides of the House who listened to the speeches of the hon. Member for Upper Bann (Mr. Trimble) and other Opposition Members will have sympathy with the particular problems of the islands and Northern Ireland. I want to deal briefly with some of the generalities in respect of airport passenger tax—they have been adequately rehearsed, so I shall not speak on them at length—before going on to explain why the amendments will not work in practice.
First, I want to clear up a point made by my hon. Friend the Member for Ayr (Mr. Gallie). The position is that if there is one journey, even if there is a relatively small break in it, there is only one tax, but if there is a significant break and, effectively, two journeys are being made—even if the break is a stopover for some reason—that will be taxed twice. I am sure that, if my hon. Friend considers the problem, he will see that any other system would be unsustainable, because at what point would the cut-off be—one day? Two days? A week? If a significant gap in a journey resulted in only one tax being levied, the system would be open to abuse.
On the generalities, everyone accepts that aviation is an area in which taxation is relatively low. International treaty provisions mean that there can be no tax on aviation fuel, unlike fuel used in many other forms of transport, so airlines have a significant fiscal advantage in that respect. Regarding the Scottish islands in particular, the small aeroplane exemption means that 50 per cent. of departures from the Scottish islands are exempt. I know that the proportion of passengers is smaller than 50 per cent., but the exemption helps a little.
The other general point is that 40 per cent. of the tax is paid by foreigners visiting the UK, in the same way as British tourists and travellers abroad have to pay taxes in other countries. There is no sign that it damages our tourism industry, which is still growing strongly, although I accept that any indirect tax increase will have a marginal impact.

Mr. Wallace: To take the Minister backwards for a moment, did I hear him say that aircraft fuel cannot be taxed? Does he accept that AvGas, which is used by a number of aeroplanes operating in the islands, is taxed? Is there any scope for looking at that aspect?

Mr. Oppenheim: Yes, there is scope for looking at that matter; but if it is not covered by international treaty, there is scope for taxing it. The hon. Gentleman might want to raise that issue when he comes to the Treasury tomorrow, but generally air fuel—regardless of whether it is for domestic or for international flights—is not taxed as a result of an international treaty.
On relative rates, as one or two Opposition Members accept, our rate is—even after this increase—still relatively low. I shall quickly read out the figures based on a £120 domestic flight—we are primarily talking about domestic flights. The tax in Germany would be £27.61, and the list then goes down through Mexico, Greece,

Austria, Finland, Spain, Norway, Italy, Belgium, Canada, Sweden, Australia, New Zealand, Switzerland, the USA, Portugal, the Netherlands—apologies to Hansard—which all levy the tax at a higher rate than the UK. The UK is in the bottom third of countries in respect of taxing domestic flights, even after the rise.
No one likes taxes, but as the shadow Chief Secretary, the hon. Member for Edinburgh, Central (Mr. Darling), pointed out, this tax raises a significant sum—£385 million in 1998–99. We all know that the money goes primarily to core services such as education, law and order and health. Those are all services on which hon. Members on both sides of the House want extra money to be spent, so it is worth remembering that that is where the money goes.

Mr. Salmond: A few seconds ago, the Minister was laughing at the hon. Member for Edinburgh, Central (Mr. Darling) for giving no commitment. In Committee, the Minister said that he was sympathetic about the specific problems of the highlands and islands, but could give no commitment. Six weeks have passed. Six weeks is a long time in politics; who knows what can happen in six weeks? Has the Minister anything constructive and tangible to offer regarding the highlands and islands or Northern Ireland?

Mr. Oppenheim: If the hon. Gentleman will let me finish, I shall describe the best possible ways to help the regions.
I greeted the shadow Chief Secretary's comments with mirth because, although I may be extrapolating too far from the drift of his comments, he seemed to be saying that, because the Labour party thought that it would be in government—I thought that Labour Front-Bench spokesmen had been forbidden to say triumphalist things like that—all of a sudden it had decided that it must be responsible. By implication, for the past 18 years it has not been responsible. It focuses the mind somewhat to know that one will be in government; one suddenly has to be responsible.
The hon. Member for Edinburgh, Central is right: a large sum is involved, and any party that votes against the raising of that sum, by what I believe to be a reasonably fair form of taxation, will have to say where else that money can be found. The hon. Gentleman makes a fair point when he says that that money primarily goes into the core services whose funding all hon. Members, regardless of party, want increased.
I was not sure whether the proposal in amendment No. 22 was that flights should be exempt or charged at a lower rate if they were to or from any objective 1 airport. To be legal under European law, that proposal would have to apply to all objective 1 airports throughout the European Union. The cost would be £50 million—quite a substantial sum—but the effect might not be exactly what hon. Members intend. For example, on that basis, the exemption would apply to all flights from any United Kingdom airport to anywhere in Greece or any other objective 1 country, so flights from Heathrow to Greece would be exempt. [Interruption.] I am sorry; that is the effect of amendment No. 22. [Interruption.] I am afraid that it is.

Mr. Salmond: The Minister is adopting a traditional Treasury Bench tactic. If the hon. Gentleman is saying


that he accepts the sense behind the amendment but does not like the detail, let him specify the highlands and islands and Northern Ireland in his own amendment, as has been specified in the case of inter-island flights already. Does the fact that we have exemption for inter-island flights—island-hopping flights on low-capacity planes—mean that a similar exemption must be made throughout the European Union? I say to the Minister, "Do not hide. If you agree with the substance of the amendment, find a way to put it into practice; if you disagree with it, say so."

Mr. Oppenheim: The hon. Gentleman misinterprets what I am saying. I in no way agree with the sense of the amendment. Not only do I not agree with the sense, but in practice the amendment is unworkable.
I shall take another example of why this measure would be unworkable. It would exempt all flights to and from Liverpool airport but not Manchester airport, thereby creating distortions and competitive problems.
I have explained the problems regarding amendment No. 22 and I have outlined the objections to basing any exemption on objective 1. To produce an amendment that applied generally to the UK regions but not more widely—which I believe the Liberal Democrats tried to do—would be illegal under articles 59 and 62.
I accept that there is a specific problem relating to the islands and to Ulster, but I do not consider that this is the way to tackle it. I believe that all hon. Members on both sides of the House accept that there are specific problems relating to the UK regions, but the way to tackle those is not to create piecemeal anomalies and exemptions, which logically could be extended to many other areas.
The way to tackle those problems is, if necessary, in some instances to give subsidies. The hon. Member for Orkney and Shetland (Mr. Wallace) expressed surprise at the idea that I, a Treasury Minister, would support that. In principle, we have always said that, where there are social needs for subsidies for transport—be it trains, buses or some air routes—that is a legitimate reason for subsidies. We do not believe in subsidising lame-duck industries, but there are cases where there should be social subsidies in sectors such as transport. We have never denied that; it is a long-standing Tory policy.
Those problems are genuine—I do not duck away from them—but the way to tackle them is not to create anomalies or piecemeal exemptions, but to use regional aid and another more general policies. I urge hon. Members not to press the amendments to a Division.

Mr. Trimble: This has been an interesting debate, and what I have heard reinforces my view that amendment No. 7 is right. I am surprised by the Government's approach on this matter. They acknowledge that there is a problem, especially regarding the regions.
The Minister says that the solution to the problem of the regions is subsidy; but subsidy will not solve the problem, because the problem is the cost caused to travellers, and the subsidy will not go to travellers. The subsidy may be relevant only in the context of uneconomic flights, where there is an argument for subsidy. We have heard, however, that the British Airways flights to Glasgow and Edinburgh are among that airline's most profitable. The most profitable route for British Midland is from London to Belfast. It is not the

most profitable route for British Airways, but there are reasons for that. The subsidy will not arise on the profitable routes, but there will be a cost for the regions. Subsidy is not the answer to the problem. The Minister acknowledges that there is a problem, but, as I have said, the answer does not lie in subsidy.
9.15 pm
The Minister should think again because of the cost that he is imposing on the regions, on businesses travelling to the regions and on individuals who travel to them. I am reinforced in my belief that amendment No. 7 is the right one because of the problems that would arise with the implementation of amendment No. 22.
The Liverpool and Manchester position is superficially attractive, but in reality is not. With a localised exemption, there will always be problems in drawing a boundary. The fact that a boundary runs over land or over sea is irrelevant. The problem with the Scottish National party's amendment, No. 22, is its reference to "Objective 1". Objective 1 is under review. As the hon. Member for Western Isles (Mr. Macdonald) said, it is not likely that objective 1 status will apply to any part of the United Kingdom within a short time. If we are to be positive, we must accept the proposal that has been put before the House in amendment No. 7.
It is right that we should take that course against the background of the costs being imposed. As my hon. Friend the Member for Belfast, South (Rev. Martin Smyth) said, a regressive tax is bearing especially heavily on those who opt for budget fares, and that can be said particularly of children.
The hon. Member for Edinburgh, Central (Mr. Darling) produced some remarkable arguments. He said that the revenue gained would benefit our constituencies. The revenue might benefit the hon. Gentleman's constituency, but it will certainly not benefit Northern Ireland constituencies, because in the current Government spending round—the hon. Gentleman may not appreciate this—expenditure in Northern Ireland as a whole is being reduced in real terms. The additional revenue will not come to any constituency in Northern Ireland.
The hon. Member for Edinburgh, Central sees a problem in raising £415 million. I am amazed. A year or two ago, we defeated the Government when they proposed increasing value added tax on domestic fuel. I did not hear Labour spokesmen expressing worries about lost revenue. The Government seemed to have no problem in filling a much greater gap than would ensue if the amendment were passed. It is remarkable, as the Minister has said, that Labour is now adopting Conservative policies in broad terms. It may quibble about details, but broadly it is adopting those policies.
Labour has been offered an opportunity this evening to defeat the Government, and what does it do? The answer is that it retreats. One wonders why Labour Members bother to continue sitting on the Opposition Benches.

Mr. Darling: Am I not right in thinking that the hon. Gentleman's party has been sustaining the Government in office for some weeks?

Mr. Trimble: There is an interesting contrast to be drawn. As on other occasions, the hon. Gentleman might


have paused to think before he spoke. Let us cast our minds back to the announcement of the Budget resolutions. How did Labour vote on this issue? Did it vote for or against? It did not vote in support.
At that stage, the Government had a majority. The Government did not have to worry about that. They do not have a majority now and an opportunity has arisen. The hon. Member for Edinburgh, Central will understand, if he reflects, that there has been no Division in this place when the votes of my colleagues would have saved the Government. However, Labour was given the opportunity tonight to defeat the Government. We do not see Labour Members. Let us see what happens when the Division is called. As the hon. Member for Ayr (Mr. Gallie) asked, where are the hon. Members representing the central belt of Scotland? They have an interest in the matter. Labour Members seem to have lost their way in their approach to the issue generally and to the amendment in particular.
I am sorry to say, Madam Deputy Speaker, that we will not withdraw the amendment, but intend to press it.

Question put, That the amendment be made:—

The House divided: Ayes 17, Noes 225.

Division No. 93]
[9.19 pm


AYES


Barnes, Harry
Salmond, Alex


Beggs, Roy
Skinner, Dennis


Butcher, John
Taylor, Rt Hon John D (Strangf'd)


Cunningham, Ms Roseanna
Trimble, David


(Perth Kinross)
Walker, A Cecil (Belfast N)


Ewing, Mrs Margaret
Welsh, Andrew


Field, Frank (Birkenhead)
Wigley, Dafydd


Forsythe, Clifford (S Antrim)



Llwyd, Elfyn
Tellers for the Ayes:


Molyneaux, Rt Hon Sir James
Mr. William Ross and Rev. Martin Smyth.


Robinson, Peter (Belfast E)



NOES


Ainsworth, Peter (E Surrey)
Brown, Michael (Brigg Cl'thorpes)


Alexander, Richard
Browning, Mrs Angela


Alison, Rt Hon Michael (Selby)
Bruce, Ian (S Dorset)


Allason, Rupert (Torbay)
Burns, Simon


Amess, David
Burt, Alistair


Arbuthnot, James
Butler, Peter


Arnold, Jacques (Gravesham)
Carlisle, John (Luton N)


Ashby, David
Carlisle, Sir Kenneth (Linc'n)


Atkins, Rt Hon Robert
Carrington, Matthew


Atkinson, Peter (Hexham)
Carttiss, Michael


Baker, Rt Hon Kenneth (Mole V)
Cash, William


Baldry, Tony
Channon, Rt Hon Paul


Banks, Matthew (Southport)
Chapman, Sir Sydney


Banks, Robert (Harrogate)
Churchill, Mr


Bates, Michael
Clappison, James


Bellingham, Henry
Clark, Dr Michael (Rochf'd)


Bendall, Vivian
Clarke, Rt Hon Kenneth


Beresford, Sir Paul
(Rushcliffe)


Biffen, Rt Hon John
Clifton—Brown, Geoffrey


Bonsor, Sir Nicholas
Congdon, David


Booth, Hartley
Conway, Derek


Boswell, Tim
Coombs, Simon (Swindon)


Bottomley, Peter (Eltham)
Cope, Rt Hon Sir John


Bowden, Sir Andrew
Cormack, Sir Patrick


Bowis, John
Couchman, James


Boyson, Rt Hon Sir Rhodes
Davis, Rt Hon David (Boothferry)


Brandreth, Gyles
Day, Stephen


Brazier, Julian
Devlin, Tim


Bright, Sir Graham
Douglas—Hamilton,


Brooke, Rt Hon Peter
Rt Hon Lord James





Dover, Den
Maitland, Lady Olga


Duncan, Alan
Malone, Gerald


Dunn, Bob
Mans, Keith


Eggar, Rt Hon Tim
Marland, Paul


Evans, Jonathan (Brecon)
Marlow, Tony


Evans, Nigel (Ribble V)
Marshall, John (Hendon S)


Evans, Roger (Monmouth)
Marshall, Sir Michael (Arundel)


Faber, David
Martin, David (Portsmouth S)


Fabricant, Michael
Merchant, Piers


Fenner, Dame Peggy
Mitchell, Andrew (Gedling)


Fishburn, Dudley
Mitchell, Sir David (NW Hants)


Forman, Nigel
Moate, Sir Roger


Forsyth, Rt Hon Michael (Stirling)
Monro, Rt Hon Sir Hector


Forth, Rt Hon Eric
Neubert, Sir Michael


Fowler, Rt Hon Sir Norman
Newton, Rt Hon Tony


Freeman, Rt Hon Roger
Nicholson, David (Taunton)


French, Douglas
Onslow, Rt Hon Sir Cranley


Fry, Sir Peter
Oppenheim, Phillip


Gallie, Phil
Ottaway, Richard


Garnier, Edward
Page, Richard


Gill, Christopher
Paice, James


Gillan, Mrs Cheryl
Patnick, Sir Irvine


Goodlad, Rt Hon Alastair
Patten, Rt Hon John


Goodson—Wickes, Dr Charles
Pattie, Rt Hon Sir Geoffrey


Greenway, John (Ryedale)
Pawsey, James


Griffiths, Peter (Portsmouth N)
Peacock, Mrs Elizabeth


Grylls, Sir Michael
Pickles, Eric


Hague, Rt Hon William
Porter, David


Hamilton, Rt Hon Sir Archibald
Portillo, Rt Hon Michael


Hanley, Rt Hon Jeremy
Powell, William (Corby)


Hannam, Sir John
Renton, Rt Hon Tim


Hargreaves, Andrew
Richards, Rod


Harris, David
Rifkind, Rt Hon Malcolm


Hawkins, Nick
Robathan, Andrew


Hawksley, Warren
Roberts, Rt Hon Sir Wyn


Heald, Oliver
Robertson, Raymond S (Ab'd'n S)


Heathcoat-Amory, Rt Hon David
Robinson, Mark (Somerton)


Hendry, Charles
Roe, Mrs Marion


Heseltine, Rt Hon Michael
Rowe, Andrew


Hicks, Sir Robert
Ryder, Rt Hon Richard


Horam, John
Scott, Rt Hon Sir Nicholas


Hordem, Rt Hon Sir Peter
Shaw, David (Dover)


Howell, Rt Hon David (Guildf'd)
Shaw, Sir Giles (Pudsey)


Hughes, Robert G (Harrow W)
Shepherd, Sir Colin (Heref'd)


Hunt, Sir John (Ravensb'ne)
Shersby, Sir Michael


Hunter, Andrew
Skeet, Sir Trevor


Jack, Rt Hon Michael
Smith, Tim (Beaconsf'ld)


Jackson, Robert (Wantage)
Speed, Sir Keith


Jenkin, Bernard (Colchester N)
Spencer, Sir Derek


Johnson Smith,
Spicer, Sir Michael (S Worcs)


Rt Hon Sir Geoffrey
Spink, Dr Robert


Jones, Gwilym (Cardiff N)
Spring, Richard


Jones, Robert B (W Herts)
Sproat, Iain


Key, Robert
Squire, Robin (Hornchurch)


King, Rt Hon Tom
Stanley, Rt Hon Sir John


Knapman, Roger
Stephen, Michael


Knight, Mrs Angela (Erewash)
Stern, Michael


Knight, Dame Jill (Edgbaston)
Stewart, Allan


Knox, Sir David
Streeter, Gary


Kynoch, George
Sweeney, Walter


Lait, Mrs Jacqui
Sykes, John


Lamont, Rt Hon Norman
Taylor, Ian (Esher)


Legg, Barry
Taylor, John M (Solihull)


Leigh, Edward
Thomason, Roy


Lennox—Boyd, Sir Mark
Thompson, Sir Donald (Calder V)


Lester, Sir Jim (Broxtowe)
Thompson, Patrick (Norwich N)


Lidington, David
Thornton, Sir Malcolm


Lilley, Rt Hon Peter
Townsend, Sir Cyril (Bexl'yh'th)


Lloyd, Rt Hon Sir Peter (Fareham)
Tracey, Richard


Lord, Michael
Tredinnick, David


Luff, Peter
Trend, Michael


Lyell, Rt Hon Sir Nicholas
Trotter, Neville


MacGregor, Rt Hon John
Twinn, Dr Ian


MacKay, Andrew
Vaughan, Sir Gerard


Maclean, Rt Hon David
Viggers, Peter


McLoughlin, Patrick
Waldegrave, Rt Hon William






Walden, George
Winterton, Mrs Ann (Congleton>


Waterson, Nigel
Winterton, Nicholas (Macclesf'ld>


Watts, John
Wolfson, Mark


Wells, Bowen
Wood, Timothy


Whitley, Sir Raymond
Yeo, Tim


Whittingdale, John
Young, Rt Hon Sir George


Widdecombe, Rt Hon Miss Ann



Wiggin, Sir Jerry
Tellers for the Noes:


Willetts, David
Mr. Sebastian Coe and Mr. Anthony Coombs.


Wilshire, David

Question accordingly negatived.

Amendment proposed: No. 22, in page 9, line 3, at end add—

(4) Subsections (1)—(3) of this section do not apply for flights to and from airports in areas in receipt of Objective 1 funding from the European Union.'.—[Mr. Salmond.]

Question put, That the amendment be made:—

The House divided: Ayes 35, Noes 223.

Division No. 94]
[9.31 pm


AYES


Alton, David
Molyneaux, Rt Hon Sir James


Barnes, Harry
Nicholson, Miss Emma (W Devon)


Beggs, Roy
Rendel, David


Berth, Rt Hon A J
Robinson, Peter (Belfast E)


Bruce, Malcolm (Gordon)
Ross, William(E Lond'y)


Campbell, Menzies (Fife NE)
Salmond, Alex


Carlile, Alex (Montgomery)
Skinner, Dennis


Chidgey, David
Smyth, Rev Martin (Belfast S)


Cunningham, Ms Roseanna
Taylor, Rt Hon John D (Strangf'd)


(Perth Kinross)
Taylor, Matthew (Truro)


Forsythe, Clifford (S Antrim)
Thumham, Peter


Foster, Don (Bath)
Trimble, David


Harvey, Nick
Tyler, Paul


Johnston, Sir Russell
Walker, A Cecil (Belfast N)


Jones, Nigel (Cheltenham)
Wallace, James


Kennedy, Charles (Ross C & S)
Wigley, Dafydd


Kirkwood, Archy



Llwyd, Elfyn
Tellers for the Ayes:


Maclennan, Robert
Mrs. Margaret Ewing and


Maddock, Mrs Diana
Mr. Andrew Welsh.




NOES


Ainsworth, Peter (E Surrey)
Bright, Sir Graham


Alexander, Richard
Brooke, Rt Hon Peter


Alison, Rt Hon Michael (Selby)
Brown, Michael (Brigg Cl'thorpes)


Allason, Rupert (Torbay)
Browning, Mrs Angela


Amess, David
Bruce, Ian (S Dorset)


Arbuthnot, James
Burns, Simon


Arnold, Jacques (Gravesham)
Burt, Alistair


Ashby, David
Butcher, John


Atkins, Rt Hon Robert
Butler, Peter


Atkinson, Peter (Hexham)
Carlisle, John (Luton N)


Baker, Rt Hon Kenneth (Mole V)
Carlisle, Sir Kenneth (Linc'n)


Baldry, Tony
Carrington, Matthew


Banks, Matthew (Southport)
Carttiss, Michael


Banks, Robert (Harrogate)
Cash, William


Bates, Michael
Channon, Rt Hon Paul


Bellingham, Henry
Chapman, Sir Sydney


Bendall, Vivian
Churchill, Mr


Beresford, Sir Paul
Clappison, James


Biffen, Rt Hon John
Clark, Dr Michael (Rochf'd)


Bonsor, Sir Nicholas
Clarke, Rt Hon Kenneth


Booth, Hartley
(Rushcliffe)


Boswell, Tim
Clifton—Brown, Geoffrey


Bottomley, Peter (Eltham)
Congdon, David


Bowden, Sir Andrew
Conway, Derek


Bowis, John
Coombs, Simon (Swindon)


Boyson, Rt Hon Sir Rhodes
Cope, Rt Hon Sir John


Brandreth, Gyles
Couchman, James


Brazier, Julian
Davis, Rt Hon David (Boothferry)





Day, Stephen
MacGregor, Rt Hon John


Devlin, Tim
MacKay, Andrew


Douglas—Hamilton,
Maclean, Rt Hon David


Rt Hon Lord James
McLoughlin, Patrick


Dover, Den
Maitland, Lady Olga


Duncan, Alan
Malone, Gerald


Dunn, Bob
Mans, Keith


Dykes, Hugh
Marland, Paul


Eggar, Rt Hon Tim
Marlow, Tony


Evans, Jonathan (Brecon)
Marshall, John (Hendon S)


Evans, Nigel (Ribble V)
Marshall, Sir Michael (Arundel)


Evans, Roger (Monmouth)
Martin, David (Portsmouth S)


Faber, David
Merchant, Piers


Fabricant, Michael
Mitchell, Andrew (Gedling)


Fenner, Dame Peggy
Mitchell, Sir David (NW Hants)


Fishburn, Dudley
Moate, Sir Roger


Forman, Nigel
Monro, Rt Hon Sir Hector


Forsyth, Rt Hon Michael (Stirling)
Neubert, Sir Michael


Forth, Rt Hon Eric
Newton, Rt Hon Tony


Fowler, Rt Hon Sir Norman
Nicholson, David (Taunton)


Freeman, Rt Hon Roger
Onslow, Rt Hon Sir Cranley


French, Douglas
Oppenheim, Phillip


Fry, Sir Peter
Ottaway, Richard


Gallie, Phil
Page, Richard


Garnier, Edward
Paice, James


Gill, Christopher
Patnick, Sir Irvine


Gillan, Mrs Cheryl
Patten, Rt Hon John


Goodlad, Rt Hon Alastair
Pattie, Rt Hon Sir Geoffrey


Goodson—Wickes, Dr Charles
Pawsey, James


Greenway, John (Ryedale)
Peacock, Mrs Elizabeth


Griffiths, Peter (Portsmouth N)
Pickles, Eric


Grylls, Sir Michael
Porter, David


Hague, Rt Hon William
Portillo, Rt Hon Michael


Hamilton, Rt Hon Sir Archibald
Powell, William (Corby)


Hanley, Rt Hon Jeremy
Renton, Rt Hon Tim


Hannam, Sir John
Richards, Rod


Hargreaves, Andrew
Robathan, Andrew


Harris, David
Roberts, Rt Hon Sir Wyn


Hawkins, Nick
Robertson, Raymond S (Ab'd'n S)


Hawksley, Warren
Robinson, Mark (Somerton)


Heald, Oliver
Roe, Mrs Marion


Heathcoat—Amory, Rt Hon David
Rowe, Andrew


Hendry, Charles
Ryder, Rt Hon Richard


Hicks, Sir Robert
Scott, Rt Hon Sir Nicholas


Horam, John
Shaw, David (Dover)


Hordern, Rt Hon Sir Peter
Shaw, Sir Giles (Pudsey)


Howell, Rt Hon David (Guildf'd)
Shepherd, Sir Colin (Heref'd)


Hughes, Robert G (Harrow W)
Shersby, Sir Michael


Hunt, Sir John (Ravensb'ne)
Skeet, Sir Trevor


Hunter, Andrew
Smith, Tim (Beaconsf'ld)


Jack, Rt Hon Michael
Speed, Sir Keith


Jackson, Robert (Wantage)
Spencer, Sir Derek


Jenkin, Bernard (Colchester N)
Spicer, Sir Michael (S Worcs)


Johnson Smith,
Spink, Dr Robert


Rt Hon Sir Geoffrey
Spring, Richard


Jones, Gwilym (Cardiff N)
Sproat, Iain


Jones, Robert B (W Herts)
Squire, Robin (Hornchurch)


Key, Robert
Stanley, Rt Hon Sir John


King, Rt Hon Tom
Stephen, Michael


Knapman, Roger
Stern, Michael


Knight, Mrs Angela (Erewash)
Stewart, Allan


Knight, Dame Jill (Edgbaston)
Sweeney, Walter


Knox, Sir David
Sykes, John


Kynoch, George
Taylor, Ian (Esher)


Lait, Mrs Jacqui
Taylor, John M (Solihull)


Lamont, Rt Hon Norman
Thomason, Roy


Legg, Barry
Thompson, Sir Donald (Calder V)


Leigh, Edward
Thompson, Patrick (Norwich N)


Lennox-Boyd, Sir Mark
Thornton, Sir Malcolm


Lester, Sir Jim (Broxtowe)
Townsend, Sir Cyril (Bexl'yh'th)


Lidington, David
Tracey, Richard


Lilley, Rt Hon Peter
Tredinnick, David


Lloyd, Rt Hon Sir Peter (Fareham)
Trend, Michael


Lord, Michael
Trotter, Neville


Luff, Peter
Twinn, Dr Ian


Lyell, Rt Hon Sir Nicholas
Vaughan, Sir Gerard






Viggers, Peter
Wilshire, David


Waldegrave, Rt Hon William
Winterton, Mrs Ann (Congleton)


Walden, George
Winterton, Nicholas (Macclesf'ld)


Waterson, Nigel
Wolfson, Mark


Watts, John
Wood, Timothy


Wells, Bowen
Yeo, Tim


Whitney, Sir Raymond
Young, Rt Hon Sir George


Whittingdale, John



Widdeoombe, Rt Hon Miss Ann
Tellers for the Noes:


Wiggin, Sir Jerry
Mr. Anthony Coombs and Mr. Sebastian Coe.


Willetts, David

Question accordingly negatived.

Clause 12

LIABILITY TO PAY GAMING DUTY

Amendments made: No. 8, in page 12, line 19, at end insert 'and'.

No. 9, in page 12, line 23, leave out from 'person' to end of line 25.—[Mr. Brandreth.]

Clause 25

CERTAIN FEES TO BE TREATED AS PREMIUMS UNDER HIGHER RATE CONTRACTS

Mr. David Shaw: I beg to move amendment No. 1, in page 20, line 16, leave out from 'or' to end of line 17.

Madam Deputy Speaker: With this, it will be convenient to discuss the following amendments: No. 2, in page 20, line 24, leave out from beginning to end of line 26.

No. 3, in schedule 4, page 120, line 1, leave out from beginning to end of line 50.

No. 4, in page 120, line 3, at end insert
'the contract is a designated contract and'.

No. 5, in page 120, line 7, at end insert—
'(1A) For the purposes of this Act a taxable insurance contract is a designated contract if it is designated by the Commissioners as being of a class under which the premium received has been fixed at a higher level than is necessary to purchase the insurance to which it relates in order to reduce the price and charge to tax of another connected contract for goods or services.
(1B) The Commissioners may make a designation under the above sub-paragraph at any time but such designation shall not take effect until the beginning of the financial year following the financial year in which the designation is made.'.

No. 6, in page 120, line 16, at end insert
'but for the purposes of this sub-paragraph a person shall not be regarded as connected with a tour operator or travel agent if he is a registered insurance broker within the meaning of the Insurance Brokers (Registration) Act 1977.'.
No. 26, in page 120, line 16, at end insert—
'() The premium under a taxable insurance contract relating to travel risks shall not fall within this paragraph if the contract provides cover for a risk which relates to services supplied by a tour operator or travel agent and these services are not subject to Value Added Tax other than at the zero rate.'.

Mr. Shaw: It is possible that one of the interests placed against my name in the Register of Members' Interests is involved here. I do not believe that it is, but I thought that I should mention it.
I raise the issue because I have been asked to take an interest in the subject by the travel industry and also by Saga Holidays—a company which, although not based in my constituency, employs a number of my constituents who work in neighbouring Folkestone at the headquarters of Saga Holdings. The change in insurance premium tax was discussed in Committee, but in the context of a number of other changes. My amendments deal solely with the possibility of exempting the travel industry from the change.
I entirely understand why the Treasury has raised the issue in the Bill—there is concern about tax avoidance through value shifting—but we are now becoming so refined in our attempts to introduce measures to counter tax avoidance that we are in danger of going too far. In many instances, we are hitting legitimate businesses that are implementing measures not designed for tax avoidance and we may end up raising taxes in certain sections of society and creating distortions. The travel industry has argued that the fears of Customs and Excise and Her Majesty's Treasury are exaggerated and may even be wrong. Travel agents are bound by the rules of the trade, which in their view make it impossible to have effective value shifting. That is because the way in which tax is paid is based on a fixed margin, which does not change if discounting takes effect.
9.45 pm
Tour operators believe that there cannot be value shifting, certainly not to any great extent, because the only circumstance in which it might happen would be in the small number of cases where the tour operator has its own travel agent and is involved in providing insurance. In those instances, where that does take place it is very unlikely that the tour operator could gain significant benefit, because competition in the marketplace is so tight and the public are well used to buying the holiday at the most competitive price. Therefore, if companies were value shifting, it might discourage the public from going to those companies.
People are beginning to ask whether this tax avoidance measure, as it is being sold to the House, is more of a revenue-raising measure. The problem is that we are likely to end up with differential taxation. Insurance sold through insurance brokers will be taxed at a different rate from travel insurance sold by the travel industry. Bridget Rosewell, an economist who runs a company called Business Strategies Ltd., has done a one-page economic analysis of this. It should be commended to the House, if only because it is on one page, which is rather unusual for economists. In the analysis, she competently points out that the differential effect will shift the selling of travel insurance towards direct insurance providers—that is, insurance brokers.
That seems illogical because it simply takes business away from those who are involved in the travel industry. I am concerned that this measure produces just a further distortion in the marketplace. It may cause many problems for travel companies and may mean that they will find some artificial way of restructuring their businesses to enable them to go on providing insurance. It seems


illogical for business to have to go through such contortions to operate in a manner approved by the Treasury. I urge the Minister to think seriously about whether the travel industry is being unfairly treated and ask whether we will end up having to revisit the matter anyway because this is not sustainable on a fair basis.
As the Minister knows, I represent a constituency with a considerable interest in the travel and tourism industry, so I hope that this issue will be seriously addressed.

Mr. Malcolm Bruce: I rise briefly to support the basic thrust of the arguments of the hon. Member for Dover (Mr. Shaw) and to refer to amendment No. 26, which is in my name.
As the Exchequer Secretary will be aware, we had quite a fair debate about this in Committee and I do not intend to repeat those arguments. The only thing I would say is that I am increasingly of the view, as expressed by the hon. Member for Dover, that this is looking more and more like a revenue-raising measure rather than a loophole-closing measure. It is discriminatory not only against the travel trade, or against certain sectors of it because of the way they happen to operate, but against the consumer, whose interests could be damaged. That case was made particularly by Saga, which obviously still feels strongly that the measure discriminates against the special way in which it approaches its specialist market. That is to the disadvantage of the consumer as much as it is to the disadvantage of the company in question.
I also suspect that, given the way in which the tax has been structured, if value shifting or tax avoidance has been a feature of the tax, which the Minister did not entirely prove, there is a danger that he is creating a framework that will encourage more of the same. Clearly, people will find one way or another to avoid falling into the 17.5 per cent. tax bracket. I wonder, for example, whether people will start to include free insurance in the price of the holiday, and in so doing argue that there should not be any tax levied at all. If free insurance is provided, 17.5 per cent. of nothing is nothing. That could lead to a fair amount of exchange between Customs and Excise and individual businesses.
Amendment No. 26 highlights a basic discrimination which, it has been suggested to me, is likely to lead to judicial review. It is absurd to suggest that there should be 17.5 per cent. VAT on the insurance premium for a product that does not attract VAT at all and therefore where the possibility of value shifting does not occur.
I know that the Minister has given a written explanation of why he is resistant to the argument. However, it is fair to say that the Federation of Tour Operators feels very strongly that there cannot be value shifting—which is an argument that the Minister used for the justification of the difference—where a product is not liable to VAT or is zero-rated. It is technically impossible, yet people will have to pay a 17.5 per cent. tax. The fact that the Minister will find that the ruling is discriminatory and will be challenged in the courts is not a threat, but it is the judgment of one person in the trade.
I do not believe that the Minister and his Department have dealt with all the anomalies satisfactorily and I am sadly confident that we shall have to re-visit the

matter. Although—I think—neither the hon. Member for Dover nor I are at this point going to press the matter any further, we want to put on record that we believe that the anomalies will have to be addressed.

Sir Peter Fry: I support my hon. Friend the Member for Dover (Mr. Shaw). I do so particularly because I am concerned about the effect of the measure on smaller travel agents rather than larger companies.
It is undoubtedly clear that very many smaller agents depend on commission from selling travel insurance to sustain themselves in competition against larger companies. My hon. Friend is chairman of the Back-Bench smaller businesses committee, and I have the honour of being its vice-chairman. The case for the small business should be put forward.
The principle that is being established is exceedingly odd and could cause endless trouble in the future. We are deciding that different rates of VAT will apply to the same product, merely according to where one buys the product. I have spent many years in the insurance industry and I deeply object to the establishment of such a principle. If the present Government or any future Government proceed on such a principle, I forecast all kinds of trouble. Like my hon. Friend the Member for Dover, I believe that this debate is not the last word on the subject. I believe that there will be such abuse or evasion of the measure that in the end the Treasury will have to look at it again. I shall give one clear example of such possible abuse.
If a customer goes to a small travel agent, who sells him a holiday, and the travel agent says, "You will of course need insurance, but if I sell it to you it will include 17.5 per cent. VAT," the customer will blink and think again. All that the travel agent has to say is, "Down the road is my friend the friendly insurance broker, who will be very happy to sell you travel insurance at a lesser rate of VAT." There would be nothing to stop the insurance broker giving his friend down the road some commission for passing on all his customers. If VAT at 17.5 per cent can be that easily evaded, one must question the very logic of introducing it in the first place.
I do not follow the logic of the hon. Member for Gordon (Mr. Bruce). Holidays may be advertised as having free insurance, but free insurance costs something, even without commission. A company that is offering free insurance will have to pay for it one way or another, and I suspect that it will do so by increasing the cost of its holidays. In that case, 17.5 per cent. VAT would be applied across the board.
This would be a retrograde measure for small businesses. I hope that it will not cause small travel agents to close. I should hope that the Government would deplore that result. I ask my hon. Friend the Minister to re-examine the matter at the earliest opportunity.

Mr. Oppenheim: I thank my hon. Friends the Members for Dover (Mr. Shaw) and for Wellingborough (Sir P. Fry) and the hon. Member for Gordon (Mr. Bruce). They made some reasonable points, and I appreciate the way in which they did so. In Committee, we probably had a fuller debate on this issue than on any other and I accepted that


clause 25 would not be an easy measure to pass. I explained that there was a problem, and that we are absolutely convinced that value shifting is occurring in the travel sector among tour operators and travel agents. The measure is not the ideal way to deal with the problem, but it is the least bad option. It is not perfect, and I have always made that absolutely clear.
I accept the argument that, whereas value shifting is clearly occurring in some sectors—particularly in the car hire sector, where it has almost amounted to an abuse—the situation has been less clear in the travel sector, although we are convinced that it is occurring. I also accept the point made by my hon. Friend the Member for Dover and the hon. Member for Gordon that we shall have to keep the matter under review. There is no question about that. It is a new type of VAT loophole, and it is being closed in a new way.
I accepted in Committee that there are complications and that the current solution is not ideal. The matter should be kept under review, and I will certainly give a commitment that the Government will do so. On that basis, I hope that my hon. Friend the Member for Dover will seek leave to withdraw the amendment.

Mr. David Shaw: I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 37

SUPPLIES TO NON-TAXABLE PERSONS ETC.

Amendments proposed: No. 11, in page 31, line 13, leave out
'Subject to sub-paragraph (3AB) below,'.—[Mr.Oppenheim.]

Madam Deputy Speaker: With this, it will be convenient to discuss Government amendment Nos.12 and 13.

Mr. Timms: I shall be very brief. The Minister will recall that we discussed in Committee, under clause 37, the matter of the Custom House and Canning Town community renewal project and the effect that the changes would have on it. My hon. Friend the Member for Bristol, South (Ms Primarolo) and I both mentioned that matter. Amendments Nos. 11, 12 and 13 put into effect the announcements made by the Minister in Committee. However, the accountants who are advising the project have mentioned some difficulties, on which I should like to question the Minister.
In a case in which a charity is the developer of a refurbished building and intends to occupy a small office in it comprising about 2 per cent. of its floor space, will subsection (13) in amendment No. 12 mean that that charity will not be able to reclaim any VAT on the project because it will occupy, as the developer, a small part of the building? The charity has always accepted that it will not be able to reclaim VAT on the 2 per cent. of floor space that it uses. That matter was not mentioned in Committee, but since the amendment was published it has caused some alarm to those involved with the project.
I raised two other issues in Committee, and the amendments do not make it clear how they have been dealt with, as the Minister said that they would. Will the Minister confirm that, in cases in which small businesses occupying commercial units are below the VAT threshold, the VAT paid will still be reclaimable? He said in Committee that he intended to exempt small workshops from the provisions of clause 37, but I am not sure where in the amendment that exemption has been made. Perhaps he will clarify that matter.
Secondly, as I mentioned in Committee, the district health authority has contributed £50,000 to the project because it would include a health centre. Will the Minister give an assurance, consistent with what he said in Committee in 11 February, that a general practitioner will not be regarded as being connected with a person responsible for financing the development, so that VAT will continue to be reclaimable on that part of the project?

10 pm

Mr. Oppenheim: I hope that I can give some clarification to the hon. Gentleman. Charities benefit from zero rating on new buildings for non-business use. Up to 10 per cent. business activity is allowed. That relief remains unaffected.
The amendments do not help a doctor, a financial sector operation, a business or any similar operation that is exempt. An exempt business gains benefit from being exempt and therefore does not have to charge VAT to its customers. The fact that doctors and hospitals cannot reclaim is reflected in their funding, which is gross of that unclaimable VAT.
The amendments are not designed to help those, such as exempt businesses or doctors, who should not be able to reclaim. Those who are exempt should not have the right to tax, and therefore the right to reclaim, otherwise they would be getting it both ways—reclaiming without having charged, or while being funded gross.
I hope that that answers the hon. Gentleman, but if he wants to deal with those points in detail with me, I shall be happy to oblige with the greatest of pleasure.

Amendment agreed to.

Amendments made: No. 12, in page 31, line 16, leave out from beginning to end of line 6 on page 32 and insert—

'(a) the grant giving rise to the supply was made by a person ('the grantor') who was a developer of the land; and
(b) at the time of the grant, it was the intention or expectation of—

(i)the grantor, or
(ii)a person responsible for financing the grantor's development of the land for exempt use, that the land would become exempt land (whether immediately or eventually and whether or not by virtue of the grant) or, as the case may be, would continue, for a period at least, to be such land."

(3) After paragraph 3 of that Schedule (construction of paragraph 2) there shall be inserted the following paragraph—

"3A.—(l) This paragraph shall have effect for the construction of paragraph 2(3AA) above.

(2) For the purposes of paragraph 2(3AA) above a grant made by any person in relation to any land is a grant made by a developer of that land if—



(a) the land, or a building or part of a building on that land, is an asset falling in relation to that person to be treated as a capital item for the purposes of any regulations under section 26(3) and (4) providing for adjustments relating to the deduction of input tax; and
(b) the grant was made at a time falling within the period over which such regulations allow adjustments relating to the deduction of input tax to be made as respects that item.

(3) In paragraph 2(3AA) above and this paragraph the references to a person's being responsible for financing the grantor's development of the land for exempt use are references to his being a person who, with the intention or in the expectation that the land will become, or continue (for a period at least) to be, exempt land—

(a) has provided finance for the grantor's development of the land; or
(b) has entered into any agreement, arrangement or understanding (whether or not legally enforceable) to provide finance for the grantor's development of the land.

(4) In sub-paragraph (3)(a) and (b) above the references to providing finance for the grantor's development of the land are references to doing any one or more of the following, that is to say—

(a) directly or indirectly providing funds for meeting the whole or any part of the cost of the grantor's development of the land;
(b) directly or indirectly procuring the provision of such funds by another;
(c) directly or indirectly providing funds for discharging, in whole or in part, any liability that has been or may be incurred by any person for or in connection with the raising of funds to meet the cost of the grantor's development of the land;
(d) directly or indirectly procuring that any such liability is or will be discharged, in whole or in part, by another.

(5) The references in sub-paragraph (4) above to the provision of funds for a purpose referred to in that sub-paragraph include references to—

(a) the making of a loan of funds that are or are to be used for that purpose;
(b) the provision of any guarantee or other security in relation to such a loan;
(c) the provision of any of the consideration for the issue of any shares or other securities issued wholly or partly for raising those funds; or 
(d) any other transfer of assets or value as a consequence of which any of those funds are made available for that purpose.

(6) In sub-paragraph (4) above the references to the grantor's development of the land are references to the acquisition by the grantor of the asset which—

(a) consists in the land or a building or part of a building on the lknd, and
(b) in relation to the grantor falls to be treated for the purposes mentioned in sub-paragraph (2)(a) above as a capital item;

and for the purposes of this sub-paragraph the acquisition of an asset shall be taken to include its construction or reconstruction and the carrying out in relation to that asset of any other works by reference to which it falls to be treated for the purposes mentioned in sub-paragraph (2)(a) above as a capital item.

(7) For the purposes of paragraph 2(3AA) above and this paragraph land is exempt land if, at a time falling within the period mentioned in sub-paragraph (2)(b) above—

(a) the grantor,

(b) a person responsible for financing the grantor's development of the land for exempt use, or
(c) a person connected with the grantor or with a person responsible for financing the grantor's development of the land for exempt use,

is in occupation of the land without being in occupation of it wholly or mainly for eligible purposes.

(8) For the purposes of this paragraph, but subject to sub-paragraphs (10) and (12) below, a person's occupation at any time of any land is not capable of being occupation for eligible purposes unless he is a taxable person at that time.

(9) Subject to sub-paragraphs (10) to (12) below, a taxable person in occupation of any land shall be taken for the purposes of this paragraph to be in occupation of that land for eligible purposes to the extent only that his occupation of that land is for the purpose of making supplies which—

(a) are or are to be made in the course or furtherance of a business carried on by him; and
(b) are supplies of such a description that any input tax of his which was wholly attributable to those supplies would be input tax for which he would be entitled to a credit.

(10) For the purposes of this paragraph—

(a) occupation of land by a body to which section 33 applies is occupation of the land for eligible purposes to the extent that the body occupies the land for purposes other than those of a business carried on by that body; and
(b) any occupation of land by a Government department (within the meaning of section 41) is occupation of the land for eligible purposes.

(11) For the purposes of this paragraph, where land of which any person is in occupation—

(a) is being held by that person in order to be put to use by him for particular purposes, and
(b) is not land of which he is in occupation for any other purpose,—

that person shall be deemed, for so long as the conditions in paragraphs (a) and (b) above are satisfied, to be in occupation of that land for the purposes for which he proposes to use it.

(12) Sub-paragraphs (8) to (11) above shall have effect where land is in the occupation of a person who—

(a) is not a taxable person, but
(b) is a person whose supplies are treated for the purposes of this Act as supplies made by another person who is a taxable person,

as if the person in occupation of the land and that other person were a single taxable person.

(13) For the purposes of this paragraph a person shall be taken to be in occupation of any land whether he occupies it alone or together with one or more other persons and whether he occupies all of that land or only part of it.

(14) Any question for the purposes of this paragraph whether one person is connected with another shall be determined in accordance with section 839 of the Taxes Act."'.

No. 13, in page 32, line 13, leave out '31st May 1997' and insert '30th November 1999'.—[Mr. Brandreth.]

Clause 54

ATTACHMENT OF DEBTS

Amendment made: No. 10, in page 51, line 18, leave out from beginning to end of line 45 on page 53.—[Mr. Brandreth.]

New Schedule 1

'SCHEDULE

FUTURES AND OPTIONS: TAXATION OF GUARANTEED RETURNS

Schedule to be inserted as Schedule _VIA to the Taxes Act 1988

SCHEDULE 5AA

GUARANTEED RETURNS ON TRANSACTIONS IN FUTURES AND OPTIONS

Charge to tax etc.

1.—(1) Subject to sub-paragraph (2) below, profits and gains arising from a transaction to which this Schedule applies (including those which, apart from this sub-paragraph, would be taken to be of a capital nature) shall be treated, when realised—

(a) as income of the person by whom they are realised; and
(b) as chargeable to tax under Case VI of Schedule D for the chargeable period in which they are realised.

(2) Sub-paragraph (1) above does not apply to—

(a) so much of any profits or gains arising to a person from a transaction as are charged to tax in his case under Case I or V of Schedule D;
(b) any profits or gains arising to a company which is a qualifying company from a transaction which, as regards that company, is or is deemed to be a qualifying contract; or
(c) any profits or gains arising to an authorised unit trust (within the meaning of section 468).

(3) In sub-paragraph (2) above—

'qualifying company' means a qualifying company for the purposes of Chapter II of Part IV of the Finance Act 1994 (interest rate, currency and debt contracts); and

'qualifying contract' means a qualifying contract for those purposes.

(4) For the purposes of this Schedule the profits and gains arising from a transaction to which this Schedule applies are to be taken to be realised at the time when the disposal comprised in the transaction takes place.

(5) For the purposes of sections 392 and 396 any loss in a transaction to which this Schedule applies is to be taken to be sustained at the time when, in accordance with sub-paragraph (4) above, any profits or gains arising from that transaction would have been realised.

(6) Subject to sub-paragraph (7) below, the following, namely—

(a) profits and gains to which sub-paragraph (1) above applies, and
(b) losses in transactions the profits and gains from which (if there were any) would be profits and gains to which that sub-paragraph applies, shall not be brought into account for the purposes of income tax, corporation tax or capital gains tax except by virtue of this Schedule and, in the case of losses, section 392 or 396.

(7) Nothing in sub-paragraph (6) above shall prevent any amount from being brought into account in accordance with section 83 of the Finance Act 1989 (receipts to be brought into account in any Case I computation made in respect of life insurance).

Transactions to which Schedule applies

2.—(1) This Schedule applies to a transaction if—

(a) it is a disposal of futures or options;
(b) it is one of two or more related transactions designed to produce a guaranteed return; and

(c) the guaranteed return comprises the return from that disposal or from a number of disposals of futures or options, of which that disposal is one, taken together.

(2) For the purposes of this Schedule two or more related transactions are transactions designed to produce a guaranteed return if, taking the transactions together, it would be reasonable to assume, from either or both of—

(a) the likely effect of the transactions, and
(b) the circumstances in which the transactions are entered into, or in which any of them is entered into,

that their main purpose, or one of their main purposes, is or was the production of a guaranteed return from one or more disposals of futures or options.

Production of guaranteed return

3.—(1) For the purposes of this Schedule a guaranteed return is produced from one or more disposals of futures or options wherever (taking all the disposals together where there is more than one) risks from fluctuations in the underlying subject matter are so eliminated or reduced as to produce a return from the disposal or disposals—

(a) the amount of which is not, to any significant extent, attributable (otherwise than incidentally) to any such fluctuations; and
(b) which equates, in substance, to the return on an investment of money at interest.

(2) For the purposes of sub-paragraph (1) above the cases where risks from fluctuations in the underlying subject matter are eliminated or reduced shall be deemed to include any case where the main reason, or one of the main reasons, for the choice of that subject matter is—

(a) that there appears to be no risk that it will fluctuate; or
(b) that the risk that it will fluctuate appears to be insignificant.

(3) In this paragraph the references, in relation to a disposal of futures or options, to the underlying subject matter are references to or to the value of the commodities, currencies, shares, stock or securities, interest rates, indices or other matters to which, or to the value of which, those futures or options are referable.

Disposals of futures or options

4.—(1) For the purposes of this Schedule a disposal is a disposal of futures or options if it consists in—

(a) the disposal of one or more futures;
(b) the disposal of one or more options; or
(c) the disposal of one or more futures together with one or more options.

(2) Subject to sub-paragraph (4) below, any question for the purposes of this Schedule as to whether there is a disposal falling within sub-paragraph (1)(a) to (c) above, or as to when such a disposal is made, shall be determined, on the assumptions specified in sub-paragraph (3) below, in accordance with—

(a) section 143(5) and (6), 144 and 144A of the 1992 Act (closing out and settlement of futures contracts and rules in relation to options); and
(b) the other provisions having effect for determining for the purposes of that Act whether or when an asset is disposed of;

and references in this Schedule to entering into a transaction are references, in relation to a transaction consisting in a disposal, to the making of the disposal.

(3) Those assumptions are—

(a) that all futures are assets for the purposes of the 1992 Act;
(b) that the words "in the course of dealing in commodity or financial futures" are omitted in each place where they occur in section 143(5) and (6) of that Act; and
(c) that any reference in that Act to a financial option within the meaning given by section 144(8) of that Act is a reference to any option that is not a traded option.

(4) Subject to sub-paragraph (5) below, where—

(a) one of a number of related transactions designed to produce a guaranteed return is the grant of an option,
(b)at least one of the other transactions is a transaction entered into after the grant of the option, and
(c) the transaction or transactions entered into after the grant of the option is or include a disposal which is not itself the grant of an option,

the disposal consisting in the grant of the option shall be deemed for the purposes of this Schedule to be a disposal made on the first occasion after the grant of the option when one of the other transactions which is a disposal but is not itself the grant of an option is entered into.

(5) Nothing in sub-paragraph (4) above affects so much of sub-paragraph (2) above as (by applying section 144(2) or 144A(2) of the 1992 Act (cases where options are exercised))—

(a) requires the grant of an option and the transaction entered into by the grantor in fulfilment of his obligations under that option to be treated for the purposes of this Schedule as a single transaction; or
(b) determines the time at which such a single transaction is to be treated for the purposes of this Schedule as entered into.

(6) In this paragraph—
'future' means outstanding rights and obligations under a commodity or financial futures contract;
'option' means a traded option or an option which is not a traded option but is an option relating to—

(a) currency, shares, stock, securities or an interest rate; or
(b) rights under a commodity or financial futures contract;

'traded option' has the meaning given for the purposes of subsection (4) of section 144 of the 1992 Act by subsection (8) of that section.

The return from one or more disposals

5.—(1) In this Schedule references to the return from one or more disposals are references to the return on investment represented either—

(a) by the total net profits and gains arising from the disposal or disposals; or
(b) by all but an insignificant part of those net profits and gains.

(2) For the purposes of the references in sub-paragraph (1) above to the total net profits and gains from any two or more disposals, it shall be assumed that profits and gains realised, and losses sustained, by persons who are associated with each other are all realised or sustained by the same person.

(3) For the purposes of sub-paragraph (2) above persons are associated with each other in relation to any two or more disposals made in pursuance of the same scheme or arrangements if—

(a) each of those persons shares or is to share, to an extent determined for the purposes of or in accordance with the scheme or arrangements, in the net return represented by the aggregate of all the profits, gains and losses realised or sustained on those disposals;

(b) those persons are associated companies at the time when the last of those disposals is made; or
(c) those persons have been associated companies at an earlier time falling after the first occasion on which a transaction was entered into in pursuance of the scheme or arrangements.

(4) In this paragraph—
'associated company' shall be construed in accordance with section 416; and
'scheme or arrangements' shall be construed in accordance with paragraph 6(4) below.

Related transactions

6.—(1) For the purposes of this Schedule two or more transactions are related if all of them are entered into in pursuance of the same scheme or arrangements.

(2) Nothing in this Schedule shall be construed as preventing transactions with different parties, or transactions with parties different from the parties to the scheme or arrangements in pursuance of which they are entered into, from being related transactions.

(3) For the purposes of this paragraph the cases in which any two or more transactions are to be taken to be entered into in pursuance of the same scheme or arrangements shall include any case in which it would be reasonable to assume, from either or both of—

(a) the likely effect of the transactions, and
(b) the circumstances in which the transactions are entered into, or in which any of them is entered into,

that neither of them or. as the case may be, none of them would have been entered into independently of the other or others.

(4) In this paragraph 'scheme or arrangements' includes schemes, arrangements and understandings of any kind, whether or not legally enforceable.

Special rule for trusts

7.—(1) Where any profits or gains are treated, in accordance with paragraph 1 above, as income arising to trustees for any year of assessment, the relevant part of that income shall be treated for the purposes of the Tax Acts as if it were income to which section 686 applies (income taxable at the rate applicable to trusts).

(2) In sub-paragraph (1) above the reference to the relevant part of any income is a reference to so much (if any) of that income as—

(a) does not fall to be treated for the purposes of the Income Tax Acts as income of a settlor;
(b) is not income arising under a trust established for charitable purposes; and
(c) is not income from investments, deposits or other property held for any such purposes as are mentioned in sub-paragraph (i) or (ii) of section 686(2)(c) (property held for pension purposes).

(3) Subsection (6) of section 686 (meaning of 'trustees' etc.) shall apply for the purposes of this paragraph as it applies for the purposes of that section.

Transfer of assets abroad

8. For the purpose of determining whether an individual ordinarily resident in the United Kingdom has a liability for income tax in respect of any profit or gain which—

(a) is realised by a person resident or domiciled outside the United Kingdom, and
(b) arises from a transaction to which this Schedule applies,


sections 739 and 740 (transfer of assets abroad) shall have effect as if that profit or gain, when realised, constituted income becoming payable to the person resident or domiciled outside the United Kingdom.

Apportionment in the case of insurance companies

9. Section 432A (apportionment of insurance companies' income) shall have effect in the case of income and losses chargeable or relievable by virtue of this Schedule as if (where that would not otherwise be the case)—

(a) any such income were for the purposes of that section a gain accruing on the disposal of an asset; and
(b) any such loss were for the purposes of that section a loss accruing on the disposal of an asset."'.—[Mr. Brandreth.]

Brought up, read the First and Second time, and added to the Bill.

Schedule 11

LEASING ARRANGEMENTS: FINANCE LEASES AND LOANS

Mr. David Shaw: I beg to move amendment No. 14, in page 159, line 37, at end insert—

'(bb) under which either—

(i) the lease forms part of a new scheme; or
(ii) if the lease forms part of an existing scheme, the lessee is not a relevant taxpayer;'.

Mr. Deputy Speaker (Sir Geoffrey Lofthouse): With this, it will be convenient to discuss the following amendments: No. 15, in page 160, line 24, leave out from 'Act)' to end of line 27 and insert
'the requirements of either sub-paragraph (IA) below or sub-paragraph (1B) below are satisfied.

(IA) The requirements of this sub-paragraph are that—

(a) a lease of an asset is or has been granted;
(b) in the case of the lease, the conditions in paragraph 3 below are or have been satisfied at some time in a period of account of the current lessor; and
(c) the lessee is not a relevant taxpayer

(1B) The requirements of this sub-paragraph are that—

(a) a lease of an asset is or has been granted on or after 26th November 1996;
(b) the lease forms part of a new scheme;
(c) in the case of the lease, the conditions in paragraph 3 below are or have been satisfied at some time on or after 26th November 1996 in a period of account of the current lessor; and
(d) the lessee is a relevant taxpayer.'.

No. 16, in page 160, line 28, leave out from 'satisfied' to 'they' in line 29 and insert

'(a) in a case falling within sub-paragraph (1A) above, at some time in a period of account of the person who was at that time the lessor, or
 (b) in a case falling within sub-paragraph (1 B) above, at any time on or after 26th November 1996 in a period of account of the person who was at that time the lessor,'.

No. 17, in page 173, line 1, after 'persons;' insert—
'(bb) under which the lease forms part of a new scheme;'. 
No. 18, in page 179, line 11, at end insert—

' "relevant taxpayer" means a person within the charge to tax in the United Kingdom under Schedule A, Schedule D or Schedule E;'

Mr. Shaw: In view of the late hour, I shall not detain the House for long. [HON. MEMBERS: "Hear, hear."] That may be the most support that I get on the issue.
Lease finance is a complex area. My research has revealed the interesting fact that one of the people who has funded the Labour Front Bench research trust was involved in lease finance some years back. Apparently, that donator to Labour's secret fund sold his leasing business in 1987 and two years later it collapsed and went bankrupt. That shows the complexity of leasing finance and the problems of it.
The details of leasing finance were discussed in Committee on 20 February. I do not propose to go into such detail tonight. The leasing industry is concerned that it may have been misunderstood and perhaps seen as an easy way of raising money. It does not accept that it was involved in tax avoidance.
I am bound to say that the Inland Revenue is one of the organisations that has recently benefited from lease finance—for the staff college. It would seem strange if the Inland Revenue were involved in tax avoidance in financing its staff college. On the basis that it has not been seeking to avoid tax, I commend the amendments to my right hon. Friend the Financial Secretary.
The leasing industry believes that it passes on any tax benefits to its customers because of the way in which it is structured. It finds it difficult to understand the way that the Treasury and Inland Revenue seem to want to tax it. One argument is that the Inland Revenue and the Treasury are seeking merely to reconcile accounting treatment with tax treatment. It is difficult to get perfection in that area because of the way in which lease finance operates and, therefore, one must question whether the changes will achieve an improvement, in terms of getting accounting treatment and tax treatment closer.
Finally, we must consider the important issue of inward investment and jobs. Commitments have been made to the leasing industry, through finance legislation, which it has passed on to foreign investors into the United Kingdom. While everyone knows that tax treatments can change, it is normal practice not to change them before a Budget, especially when no prior announcement has been made. In this area, the tax treatment can affect inward investment decisions and commitments entered into involving inward investment prior to the Budget. Surely that precedent should not be made. Surely my right hon. Friend should recognise that that was not what was desired when the changes were proposed and surely that is a circumstance that should not happen in the future.
I invite my right hon. Friend the Financial Secretary to give a commitment that those changes will be subjected to much greater scrutiny and that such changes and precedents, which are dangerous, will not occur. We want to maximise inward investment. It is important for the Government to continue to give inward investors strong encouragement. We have record inward investment into this country and we should not change—even to the small extent that we are discussing—taxation practice in any way that would give inward investors the message that they are not welcome or that the tax treatment might change.
I hope that we will hear strong confirmation from my right hon. Friend that the Government will not allow such things to happen again in a way that might raise question marks in the minds of those involved in inward investment and the leasing industry. After all, the leasing industry is significant and important, it is supported by a number of Government Departments and it encourages inward investment into the United Kingdom.

Mr. Winston Churchill: I rise briefly to support my hon. Friend the Member for Dover (Mr. Shaw). As he pointed out, about one third of all investment in this country is financed by lease financing. That has formed a key part of the prosperity that has been generated in recent years under this Government.
The thing that concerns me particularly about this aspect of the Finance Bill is that it would appear that the Government are changing the ground rules retrospectively. They are doing so in the case not only of United Kingdom investors, but of foreign investors into the UK.
Money comes in on a large scale from Japan and from European Union countries, and the arrangements have been a key part of what has been on offer from GB Ltd. to persuade Siemens, Toyota and Nissan, for example, either to make or to increase investments here. I find it deeply concerning that the legislation appears to be changing the ground rules retrospectively so that investments and commitments that have already been made will end up costing a great deal more. That could send the wrong message to potential investors.

Mr. Jack: It is a great pity that my hon. Friends did not read my remarks in Committee; they would have found that their arguments were adequately dealt with. We are not anti-leasing; we are in favour of investment in this country. We want to encourage inward investment by having what we believe to be the best tax regime in Europe, if not the world. We certainly do not want those investments to be burdened by the social chapter.
We have sought to act against the leases because they are contrived tax avoidance arrangements solely to the benefit of banks, effectively, although the lessee gains something. The lessees knew what they were signing up to: their agreements clearly stated that if there were changes in the tax regime they would have to bear the costs.
The measure represents a saving to the taxpayer of £150 million, against a total of investment affected of about £½ billion, and I believe that I am right in saying that total leased investment represents about £20 billion, so it could not be said to be a show-stopper for the United Kingdom.
The legislation is not retrospective: it is prospective in that it taxes the income on such arrangements into the future. We are not going backwards in time. For those reasons, I invite my hon. Friend the Member for Dover (Mr. Shaw) to withdraw the amendment.

Mr. Salmond: I think that the Minister said a few seconds ago that Britain had the best and most favourable business taxation regime in the world. Does he seriously want to stand by that comment, given the huge range of examples of countries with more favourable business tax regimes?

Mr. Jack: My comment was directed to our mainstream rate of corporation tax and to the small

companies corporation tax. On any occasion other than now, I would be delighted to debate that with the hon. Gentleman.

Mr. David Shaw: I can certainly confirm what my right hon. Friend said about our not entering the social chapter being one of the main reasons why inward investors come to this country and why my constituency is doing well in creating jobs in small businesses. We do not have the social chapter and in consequence unemployment in Dover is less than half that in Calais.
I tried to read all my right hon. Friend's speech in Committee, and I am not entirely convinced that the leasing industry has been fairly treated. That industry passes on a large part of the benefit achieved through tax arrangements that have been accepted for many years by Governments of both political persuasions. It is somewhat unfair that the benefits that are passed on may not be taken advantage of as much as one would like by some of the inward investors.
However, in the circumstances, it would not be appropriate to press the amendment to a vote. I therefore beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 23, in page 160, line 12, leave out from 'where' to second 'the' in line 18.

No. 19, in page 168, line 12, leave out from beginning to end of line 38 on page 170 and insert—

'Capital allowances

11.—(1) This paragraph applies in any case where an occasion occurs on or after 26th November 1996 on which a major lump sum falls to be paid in the case of the lease of the asset.

(2) In this paragraph "the relevant occasion" means the occasion mentioned in sub-paragraph (1) above.

(3) If capital expenditure incurred by the current lessor in respect of the leased asset is or has been taken into account for the purposes of any allowance or charge under any of the following groups of provisions, that is to say—

(a) sections 520 and 521 of the Taxes Act 1988 (patent rights),
(b) Part II of the Capital Allowances Act 1990 (machinery and plant), or
(c) Part IV of that Act (mineral extraction allowances),
the group of provisions in question ("the relevant provisions") shall have effect as if the relevant occasion were an event by reason of which a disposal value is to be brought into account of an amount equal (subject to any applicable limiting provision) to the amount or value of the major lump sum.

(4) In this paragraph "limiting provision" means a provision to the effect that the disposal value of the asset in question is not to exceed an amount ("the limit") described by reference to capital expenditure incurred in respect of the asset.

(5) Where—

(a) by virtue of sub-paragraph (3) above, a disposal value ("the relevant disposal value") falls or has fallen to be brought into account by a person in respect of the leased asset for the purposes of the relevant provisions, and
(b) a limiting provision has effect in the case of those provisions, sub-paragraph (6) below shall apply.

(6) Where this sub-paragraph applies, the limiting provision shall have effect (if or to the extent that it would not otherwise do so)—

(a) in the case of the relevant disposal value, and
(b) in the case of any simultaneous or subsequent disposal value,



as if, instead of any particular disposal value, it were the aggregate amount of all the disposal values brought into account for the purposes of the relevant provisions by the current lessor in respect of the leased asset which is not to exceed the limit.

(7) In sub-paragraph (6) above "simultaneous or subsequent disposal value" means any disposal value which falls to be brought into account by the current lessor in respect of the leased asset by reason of any event occurring subsequent to, or at the same time as, the event by reason of which the relevant disposal value falls to be brought into account.

(8) If any allowance is or has been given in respect of capital expenditure incurred by the current lessor in respect of the leased asset under any provision of the Capital Allowances Acts other than those specified in sub-paragraph (3) above, an amount equal to the lesser of—

(a) the aggregate of the allowances so given (so far as not previously recovered or withdrawn),
(b) the amount or value of the major lump sum,

shall, in relation to the current lessor, be treated as if it were a balancing charge to be made on him for the chargeable period or its basis period in which falls the relevant occasion.

(9) If there is or has been allowed to the current lessor in respect of expenditure incurred in connection with the leased asset any deduction by virtue of—

(a) subsection (3) of section 68 of the Capital Allowances Act 1990 (films, tapes and discs), so far as relating to expenditure to which subsection (1) of that section applies, or
(b) section 42 of the Finance (No. 2) Act 1992 (production or acquisition expenditure on films),
sub-paragraph (10) below shall apply.

(10) Where this sub-paragraph applies, the current lessor shall be treated as if receipts of a revenue nature of an amount equal to the amount (if any) by which—

(a) the amount or value of the major lump sum, exceeds
(b) the amount or value of so much of the major lump sum as is treated as receipts of a revenue nature under section 68(8) of the Capital Allowances Act 1990, arose to him from the trade or business in question on the relevant occasion.

(11) If there is or has been allowed to the current lessor in respect of capital expenditure incurred in connection with the leased asset any deduction by virtue of—

(a) section 91 of the Taxes Act 1988 (cemeteries etc), or
(b) section 91A or 91B of that Act (restoration and preparation expenditure in relation to a waste disposal site),

sub-paragraph (12) below shall apply.

(12) Where this sub-paragraph applies, the current lessor shall be treated as if trading receipts of an amount equal to the lesser of—

(a) the amount or value of the major lump sum,
(b) the deductions previously allowed, arose to him from the trade in question on the relevant occasion.

(13) If, in a case where this paragraph applies, allowances are or have been made to a person ("the contributor") by virtue of section 154 of the Capital Allowances Act 1990 (allowances in respect of contributions to capital expenditure) in respect of his contribution of a capital sum to expenditure on the provision of the leased asset, the foregoing provisions of this paragraph shall have effect in relation to the contributor and allowances by virtue of that section in respect of the contribution as they have effect in relation to the current lessor and allowances in respect of capital expenditure incurred by him in respect of the leased asset.

(14) In sub-paragraph (8) above, "chargeable period or its basis period" shall be construed in accordance with the Capital Allowances Act 1990.

(15) In the application of sub-paragraph (8) above—

(a) in relation to a trade, profession or vocation set up and commenced on or after 6th April 1994, or
(b) as respects the year 1997–98 or any subsequent year of assessment in relation to a trade, profession or vocation set up and commenced before 6th April 1994,

that sub-paragraph shall have effect with the omission of the words "or its basis period" and sub-paragraph (14) above shall accordingly have effect with the same omission.'—[Mr. Brandreth.]

Schedule 17

REPEALS

Amendments made: No. 20, in page 214, line 17, at end insert—


"(5A) Annuity business of insurance companies


Chapter
Short title
Extent of repeal


1988 c. 1.
The Income and Corporation Taxes Act 1988.
In section 76(2A)(b), sub-paragraph (iv) and the wore "and" immediately preceding it. Section 434B(2).




In section 490(2). the words from "but if onwards.


1991 c. 31.
The Finance Act 1991.
In Schedule 7. paragraph 16(3) and (4).


1995 c. 4.
The Finance Act 1995.
In Schedule 8, paragraph 21(1).


1996 c. 8.
The Finance Act 1996.
Section 165(3).

These repeals have effect in relation to accounting periods beginning after 5th March 1997.'.

No. 21, in page 218, leave out lines 31 to 35.—[Mr. Brandreth.]

Order for Third Reading read.

Motion made, and Question proposed, That the Bill be now read the Third time.—[Mr. Jack.]

Mr. Malcolm Bruce: I wish briefly to remind the House that the Liberal Democrats and some other parties voted against the Bill's Second Reading. Nothing that has happened during its passage has convinced us that it is the right Finance Bill for the country. One or two things that happened outside the House between Second Reading and Third Reading have sharpened our reasons for opposing it.
It is interesting that only this week the Confederation of British Industry said that it was concerned that the Government's fiscal stance was not tight enough, that inflationary pressures were building up and that it would prefer an increase in taxes to a rise in interest rates. The Bill cuts taxes and gives the lie to the Chancellor's previously firmer commitment to getting inflation down and keeping it down. He is using the excuse of the rise in the exchange rate, and its deflationary effect, to justify his inaction on domestic inflation. He knows that he should address the domestic pressures, but he is not for reasons that we all know: we are about to have a general election and he does not want to do anything that might damage the Government's re-election prospects, bleak as they appear.
In the past couple of weeks, the Halifax building society's vote for conversion, or demutualisation, has revealed a more substantial pool of cash than was expected. It is extraordinary that it has to give that money away rather than reinvesting it. That, too, is building up inflationary pressures.
Perhaps most important of all, we believe that, whereas the Government have cut taxes, they should have put the money into education. Improving the quality of education is not just a matter of resources, but it is not possible to expand nursery education, reduce class sizes and equip our schools effectively using existing resources. We remain convinced that we were correct to vote against the penny reduction in income tax. Indeed, we are committed to reversing that cut and putting the money where it is needed. The Liberal Democrats will vote against the Bill.

Mr. Christopher Gill: It is customary on Third Reading for a Back Bencher to pay tribute to the Standing Committee for all its hard work. It has been customary for a year or two for me to pay that tribute. It is also customary for me to talk about capital taxation and, once again, to express disappointment that the Budget does not abolish capital gains tax and inheritance tax. I have often pointed out that capital is the lubricant of a capitalist economy. It is wrong that we should continue capital taxes.
In the current year, capital gains tax will raise £900 million for the Treasury, after reliefs and allowances, which cost the Treasury £600 million. A tax with the potential to raise £1.5 billion has raised only £900 million. That is without counting the cost of the time and energy of the experts who have been involved in guiding people who wish to save tax on this account through the minefield of the legislation. I submit again that too many of our best brains are employed in trying to find ways around capital taxes, and that they could be better employed in creating more wealth in the economy. I hope that Ministers will look again at the question of capital taxation, which is repeatedly instanced by the wealth-creating sector of our economy as a brake on the effectiveness of that sector and should be abolished.
I greatly welcome the reduction in the standard rate of tax to 23p in the pound. That means that, in April this year, it will be a whole 10p less in the pound than it was under the Labour Government in 1979.

Mr. Salmond: I too represent a party that opposed the Bill on Second Reading; we also opposed certain aspects of it, such as the penny off income tax. I am quite certain, both on specifics and on generalities, that this is incompetent legislation.
Like many other hon. Members, I was engaged with the concerns expressed by people in industry about the changes to the structure of VAT—in particular, reclaimability. It struck me that all the experts who were consulted were worried that the Bill was being rushed through without enough scrutiny. Many of its flaws, and the possibility of legal challenge, will emerge over the coming months and years. Perhaps Treasury Ministers do not believe that they will be in the firing line when those legal challenges are made. Perhaps not; still, there are good reasons for thinking, particularly with respect to the VAT provisions, that the Bill will run into trouble in domestic and European courts.
Something of the casual attitude towards the structure of the Bill was summed up by the Financial Secretary's blithe assertion a couple of seconds ago that the United Kingdom had the most favourable corporate tax regime in

the world. Perhaps I will arrange for the Library to give him a list of the countries with lower corporate tax regimes than the United Kingdom. Can the Minister be unaware of the fact that, just off the west coast of the UK, there is a country that offers a 10 per cent. corporation tax regime across a range of provisions to inward investors? That rate, offered by the Republic of Ireland, is one reason—

Mr. Jack: Only to manufacturing industry.

Mr. Salmond: But that is rather important. Admittedly, we have much less manufacturing industry than we used to, but some countries think that inward investment in manufacturing industry is rather important—which is why the Republic of Ireland accounts for about 40 per cent. of inward investment in software from the United States of America. That sort of taxation regime favours research and development and capital-intensive projects, as opposed to the electronic fabrication plants that have gone to Wales, Scotland and the north of England.
The Bill has been incompetently presented and incompetently scrutinised by Ministers and Labour Front Benchers, all of them far more interested in the election campaign than in the Finance Bill. That is perhaps understandable, but the shadow Treasury team has been engaged throughout not in scrutinising the Bill but in shadowing Treasury Ministers. That can result only in failed legislation.
Labour Front Benchers imprisoned themselves by their refusal to vote against the penny reduction in income tax. There can be various reasons for voting against a financial measure. The Liberal Democrats wanted to restore the income tax cut; we wanted to raise the ceiling on national insurance contributions; both our parties at least were committed to progressive taxation. It is unbelievable to find that Labour Front Benchers want tax and spending policies identical to those of the Government across the full range of major legislation. That is a very unhealthy process, both for Labour and for democracy. It allows Bills to pass without scrutiny and without debate on their implications.
Tonight, we witnessed the farce of the leader of the Ulster Unionist party declaring that an opportunity to defeat the Government on the Finance Bill had been missed, only to hear cat calls and cries of "Untrue!" from the Labour Front Bench. On the issue of airport tax, the Ulster Unionists were so far committed to opposing the relevant part of the Bill that they would certainly not have declined the opportunity to defeat the Government on it. For the Labour party not to believe that an opportunity was there to attack the Government on the Finance Bill and to defeat this discredited Government on part of their legislation is simply incredible.
We were told by the hon. Member for Edinburgh, Central (Mr. Darling) that he did not like the amendment proposed by the Ulster Unionists; he did not like the amendment proposed by the Scottish National party; he did not like the amendment that would have been proposed by the Liberal Democrats, had they the opportunity to do so; but what was absent from the amendment paper was an opportunity offered by a Labour amendment that could potentially have united all the diverse Opposition parties and inflicted a richly deserved defeat on the Government. That opportunity—wasted and


neglected this evening—will reverberate through the election campaign, as will the Labour party's foolish decision to shadow the Government's tax-and-spend policies and to imprison itself in the policies of a failed Government. That will be an issue of which the Labour party will hear a great deal throughout the election campaign.

Mr. Darling: The hon. Member for Banff and Buchan (Mr. Salmond) has again demonstrated his opportunism. On the one hand, he says that we should have voted against the Finance Bill because it does not increase taxes; on the other hand, an hour ago, he voted for an amendment that would have removed £400 million from the Budget. No one listening to him could fail to realise that, however he approaches the Bill and whatever he does, he is motivated purely by opportunism. Perhaps he should have paid closer attention to what his hon. Friend the hon. Member for Moray (Mrs. Ewing) said in the Scottish Grand Committee some weeks ago: having conceded that the nationalists would not win the next election, she then went on to say that, if there were a separate Scottish state, the Scottish currency would shadow the English and Welsh pound sterling. If ever there was an example of how the nationalists are prepared to hitch their wagon to another currency, without any control or influence over the economic policies governing it, that is it.
I am indebted to the hon. Member for Ludlow (Mr. Gill)—I had no idea that it was a tradition that he spoke on Third Reading. I have missed that feature for the past 10 years, but I am grateful to him for having taken this opportunity to remind the House and the country that it is the Conservatives' policy to abolish capital gains tax and inheritance tax, at a cost of £4.5 billion. They do not tell us where that money will come from, but half the gain will go to 5,000 people in this country. In contrast, we believe that, if that money was available, it would be far better to spend it on reducing the barriers that face people who are on benefit and on getting them back into work, because that will bring far greater economic and social benefits to this country. Perhaps that highlights some of the differences between the Labour party and the Tories.
This is the last Budget of this Parliament. The tradition that the Conservatives have set, never mind for the past 10 years, but in every Budget since the 1992 election, is that the Finance Bill increases taxes. There were 22 tax increases before this Budget, and there are seven new tax increases now—each one breaking an express promise made by the Tories at the last election.
On the eve of Third Reading, we should all be indebted to The Grocer magazine, in which the Chancellor—yet again—reminds us that he has a strong personal commitment to transferring taxes from income to spending. Those of us who listened to his interview from Beijing on the "Today" programme noticed that he did not deny having said to the lady from The Grocer that the challenge was to increase VAT on fuel back up to 17 per cent. His main complaint was that The Grocer had not made that the main story, instead of the Tory threat to put VAT on food. The Chancellor and the Chief Secretary to the Treasury, who is here tonight, have made no secret of

the fact that the Conservatives intend to transfer the burden of taxation from tax on income to tax on spending. If the Conservatives were to win another term of office, we should not, therefore, be surprised if they increased VAT on fuel to the full rate of 17 per cent., or if they imposed VAT on other items.
The Bill has left other problems, which have been referred to both in Committee and tonight. We shall have to return to those items in future. The evidence is clear: increasingly, people do not trust the Conservatives on their management of the economy and they do not believe a word they say on tax, on economic policy, or on anything else. This is the last Budget that the Conservative Government are likely to present, because people will look for a Government who are committed to a different outlook, a Government who have different priorities and will make different choices, a Government who will create a stable platform on which we can build for the future, a Government who are committed to education and to improving the health service, and a Government who will equip this country for the future and the next millennium.

Mr. Jack: This is the last Finance Bill of this Parliament, but it is fitting because it crowns five years of achievement on the economy. I am grateful to my hon. Friend the Member for Ludlow (Mr. Gill) for his kind words. I might add some of my own, if I may, for my colleagues the Economic Secretary and the Exchequer Secretary, who have ably piloted their sections of the Bill to a successful conclusion.
The Bill is very much in the shape in which it started, which is a testament to the excellence of the original drafting. It is a Budget that confirms those who currently sit on Government Benches and the Conservative party as those who are committed to cutting taxes. We cut the basic rate of income tax to 23p in the pound, the lowest basic rate for nearly 60 years, and it signalled the continuing rise in living standards that has been the hallmark of my right hon. and learned Friend the Chancellor of the Exchequer.
We have taken steps in the Bill to protect the tax base; the 14 separate measures on closing tax loopholes alone will yield more than £1 billion. They have secured public finances that are very solid indeed. Our public sector borrowing requirement to gross domestic product ratio throughout our tenure of office—2½ per cent.—was not equalled by the best that the official Opposition could do when they were in government. It is not something that even they could dream about.
The state of our public finances is strong; our tax-cutting agenda has been resumed; the tax base has been secured. I commend the Bill to the House.

Question put, That the Bill be now read the Third time:—

The House divided: Ayes 202, Noes 21.

Division No. 95]
[10.31 pm


AYES


Ainsworth, Peter (E Surrey)
Arbuthnot, James


Alexander, Richard
Arnold, Jacques (Gravesham)


Alison, Rt Hon Michael (Selby)
Ashby, David


Allason, Rupert (Torbay)
Atkins, Rt Hon Robert


Amess, David
Atkinson, Peter (Hexham) 






Baldry, Tony
Fry, Sir Peter 


Banks, Matthew (Southport)
Gallie, Phil


Bates, Michael
Garnier, Edward


Beggs, Roy
Gill, Christopher


Bellingham, Henry
Goodlad, Rt Hon Alastair


Bendall, Vivian
Goodson—Wickes, Dr Charles


Beresford, Sir Paul
Greenway, John (Ryedale)


Biffen, Rt Hon John
Griffiths, Peter (Portsmouth N)


Bonsor, Sir Nicholas
Hague, Rt Hon William


Booth, Hartley
Hamilton, Rt Hon Sir Archibald


Boswell, Tim
Hanley, Rt Hon Jeremy


Bowden, Sir Andrew
Hannam, Sir John


Bowis, John
Hargreaves, Andrew


Boyson, Rt Hon Sir Rhodes
Harris, David


Brandreth, Gyles
Hawkins, Nick


Brazier, Julian
Hawksley, Warren


Bright, Sir Graham
Heald, Oliver


Brooke, Rt Hon Peter
Heathcoat—Amory, Rt Hon David


Brown, Michael (Brigg Cl'thorpes)
Hendry, Charles


Browning, Mrs Angela
Hicks, Sir Robert


Burt, Alistair
Howell, Rt Hon David (Guildf'd)


Butler, Peter
Hughes, Robert G (Harrow W)


Carlisle, John (Luton N)
Hunt, Sir John (Ravensb'ne)


Carlisle, Sir Kenneth (Linc'n)
Hunter, Andrew


Carrington, Matthew
Jack, Rt Hon Michael


Cash, William
Jackson, Robert (Wantage)


Channon, Rt Hon Paul
Jenkin, Bernard (Colchester N)


Chapman, Sir Sydney
Johnson Smith,


Churchill, Mr
Rt Hon Sir Geoffrey


Clappison, James
Jones, Gwilym (Cardiff N)


Clark, Dr Michael (Rochf'd)
Jones, Robert B (W Herts)


Clarke, Rt Hon Kenneth
Key, Robert


(Rushdiffe)
King, Rt Hon Tom


Clifton—Brown, Geoffrey
Knapman, Roger


Coe, Sebastian
Knight, Mrs Angela (Erewash)


Congdon, David
Knight, Rt Hon Greg (Derby N)


Conway, Derek
Knight, Dame Jill (Edgbaston)


Coombs, Simon (Swindon)
Knox, Sir David


Cope, Rt Hon Sir John
Kynoch, George


Couchman, James
Lait, Mrs Jacqui


Davis, Rt Hon David (Boothferry)
Legg, Barry


Day, Stephen
Leigh, Edward


Douglas-Hamilton,
Lennox—Boyd, Sir Mark


Rt Hon Lord James
Lester, Sir Jim (Broxtowe)


Dover, Den
Lidington, David


Duncan, Alan
Lilley, Rt Hon Peter


Dunn, Bob
Lord, Michael


Eggar, Rt Hon Tim
Luff, Peter


Evans, Jonathan (Brecon)
Lyell, Rt Hon Sir Nicholas


Evans, Nigel (Ribble V)
MacGregor, Rt Hon John


Evans, Roger (Monmouth)
MacKay, Andrew


Faber, David
Maclean, Rt Hon David


Fabricant, Michael
McLoughlin, Patrick


Fenner, Dame Peggy
Mans, Keith


Forman, Nigel
Marlow, Tony


Forsyth, Rt Hon Michael (Stilling)
Marshall, John (Hendon S)


Forth, Rt Hon Eric
Marshall, Sir Michael (Arundel)


Freeman, Rt Hon Roger
Martin, David (Portsmouth S)


French, Douglas
Merchant, Piers





Mitchell, Andrew (Gedling)
Stanley, Rt Hon Sir John


Mitchell, Sir David (NW Hants)
Stephen, Michael


Moate, Sir Roger
Stern, Michael


Monro, Rt Hon Sir Hector
Stewart, Allan


Neubert, Sir Michael
Streeter, Gary


Newton, Rt Hon Tony
Sweeney, Walter


Nicholson, David (Taunton)
Sykes, John


Onslow, Rt Hon Sir Cranley
Taylor, Ian (Esher)


Oppenheim, Phillip
Taylor, John M (Solihull)


Page, Richard
Taylor, Sir Teddy


Paice, James
Thomason, Roy


Patnick, Sir Irvine
Thompson, Sir Donald (Calder V)


Patten, Rt Hon John
Thompson, Patrick (Norwich N)


Pattie, Rt Hon Sir Geoffrey
Thornton, Sir Malcolm


Pawsey, James
Townsend, Sir Cyril (Bexl'yh'th)


Peacock, Mrs Elizabeth
Tracey, Richard


Pickles, Eric
Tredinnick, David


Porter, David
Trend, Michael


Portillo, Rt Hon Michael
Trotter, Neville


Powell, William (Corby)
Twinn, Dr Ian


Renton, Rt Hon Tim
Viggers, Peter


Richards, Rod
Waldegrave, Rt Hon William


Roberts, Rt Hon Sir Wyn
Walden, George


Robertson, Raymond S (Ab'cfn S)
Waterson, Nigel


Robinson, Mark (Somerton)
Watts, John


Roe, Mrs Marion
Wells, Bowen


Rowe, Andrew
Whitney, Sir Raymond


Ryder, Rt Hon Richard
Whittingdale, John


Scott, Rt Hon Sir Nicholas
Widdecombe, Rt Hon Miss Ann


Shaw, David (Dover)
Wiggin, Sir Jerry


Shaw, Sir Giles (Pudsey)
Willetts, David


Shepherd, Sir Colin (Heref'd)
Wilshire, David


Shersby, Sir Michael
Winterton, Mrs Ann (Congleton)


Smith, Tim (Beaconsf'ld)
Winterton, Nicholas (Macclesf'ld)


Spencer, Sir Derek
Wolfson, Mark


Spicer, Sir Michael (S Worcs)
Wood, Timothy


Spink, Dr Robert
Young, Rt Hon Sir George


Spring, Richard
Tellers for the Ayes:


Sproat, lain
Mr. Richard Ottaway and Mr. Anthony Coombs.


Squire, Robin (Hornchurch)



NOES


Berth, Rt Hon A J
Maddock, Mrs Diana


Bruce, Malcolm (Gordon)
Nicholson, Miss Emma (W Devon)


Campbell, Menzies (Fife NE)
Rendel, David


Cariile, Alex (Montgomery)
Salmond, Alex


Chidgey, David
Skinner, Dennis


Davies, Chris (Littleborough)
Taylor, Matthew (Truro)


Foster, Don (Bath)
Thurnham, Peter


Harvey, Nick
Tyler, Paul


Johnston, Sir Russell
Wallace, James


Jones, Nigel (Cheltenham)
Tellers for the Noes:


Kennedy, Charles (Ross C&S)
Mr. Archy Kirkwood and Ms Liz Lynne.


Maclennan, Robert

Question accordingly agreed to.

Bill read the third time, and passed.

PETITIONS

Eruthianathan Family

Mr. John Austin-Walker: I have a petition on behalf of the Eruthianathan family who live in my constituency. In addition to the formal petition, there is a petition in like form signed by several hundred parishioners of the St. Benet's parish in Abbey Wood. The petition is also supported by the Roman Catholic Archbishop of Southwark, the Anglican Bishop of Southwark, the Eruthianathans' own local bishop, the head of St. Paul's Roman Catholic secondary school, Abbey Wood, and the head of the Christ the King sixth form centre.
The petition reads:
The Humble Petition…sheweth that it is the intention of the Secretary of State for the Home Department to deport Rita and Francis Eruthianathan and their two children, Llewellyn…and Lynette…that the family have lived in the UK continuously for 7 years and Llewellyn and Lynette have spent most of their Secondary School education in England; and that Mrs. Rita Eruthianathan's widowed mother and seven brothers and sisters are permanently resident in the UK and that her mother was granted leave to remain in the UK to be united with her family.
Wherefore your Petitioners pray that your Honourable House will call upon the Secretary of State for the Home Department to review his decision on compelling compassionate grounds and allow Rita, Francis, Llewellyn and Lynette Eruthianathan to remain in the United Kingdom.

To lie upon the Table.

Children (Sexual Exploitation)

Dame Peggy Fenner: I have the honour to present this petition to the Commons of the United Kingdom of Great Britain and Northern Ireland in Parliament assembled. This is the first volume of nine similar volumes. In 1994, I presented a petition on behalf of the National Council of Women.
The petition reads:
The Humble Petition of Members of Action for Children Campaign, the National Council of Women of Great Britain, Affiliated Societies and Residents and Citizens of the United Kingdom
Sheweth
That we, the undersigned, hereby:
1. express our deep concern at continuing reports that citizens of developed nations travelling abroad may be encouraging the use of children in prostitution and pornography;
2. affirm our commitment to the principles of the United Nations Convention on the Rights of the Child, which seeks to protect children from sexual exploitation; and
3. call upon Her Majesty's Government to seek to play an active role in bringing about concerted international action to tackle this problem and in particular to examine ways of ensuring that individuals involved in such exploitation are brought to justice within the United Kingdom.
Wherefore your Petitioners pray that your Honourable House do introduce legislation to ensure that citizens of the United Kingdom who commit serious sexual offences against children abroad can be prosecuted in this country.
And your Petitioners, as in duty bound, will ever pray, etc.
To lie upon the Table.

Police (Leicester)

Mr. Keith Vaz: On behalf of my constituents, Lynne Sellars, Elaine Burgin, Paul Newcombe and Ricki Thomas, and Councillors Mary Draycott, Stewart Foster and Walt Lindsey, I wish to present a petition in support of additional police officers in the outer estates of Leicester, East. In addition, my constituents want to ensure that the local police station at Uppingham road remains open on a full-time basis. The petition calls on the Home Secretary to allow sufficient resources to be spent to open the police station at Uppingham road, Leicester permanently and to provide additional police officers in the Thurnby Lodge area.
To lie upon the Table.

Liskeard School and Community College

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Brandreth.]

Sir Robert Hicks: I welcome this opportunity to raise the urgent need to unify the Liskeard school and community college on a single site. It is always gratifying to know that the Minister answering an Adjournment debate is familiar with the local geography. My hon. Friend the Under-Secretary of State for Education and Employment, the Member for Hornchurch (Mr. Squire), has kindly agreed to stand in for another Under-Secretary of State for Education and Employment, our hon. Friend the Member for Chesham and Amersham (Mrs. Gillan).
Our hon. Friend visited Liskeard in November 1995 to see for herself the very real problems being experienced at the Liskeard junior school. During that visit, she also saw something of the unsatisfactory situation at Liskeard school and community college. Her visit to the junior school had a very favourable outcome, as a new junior school is now under construction—I like to think, as a result of her intervention. Therefore, she has set a precedent for her colleague, a fellow junior Minister at the Department for Education and Employment, to respond in an equally favourable manner to my remarks this evening. We are hopeful that, by my raising this subject, we shall make some tangible progress regarding the needs of secondary education in Liskeard.
Six comprehensive schools are located in my constituency. They occupy single sites, with the exception of Liskeard, which occupies two sites at opposite ends of the market town. The first two school years—about 400 pupils—are based on the former grammar school premises. Those pupils are, in practice, isolated from important facilities offered on the main campus. This latter site—formerly the Liskeard secondary modern school—is very attractive. Needless to say, all the new facilities that were provided since the amalgamation of the two schools in the mid-1970s were built on that latter site.
Because Liskeard school is the top priority for unification on one site in Cornwall, the local education authority has decided—for totally understandable reasons—not to spend scarce economic resources on upgrading the older buildings at the lower school site. As a result, the lower school buildings and temporary classrooms are not energy-efficient. It is not a sound use of scarce resources to maintain more than 20 temporary buildings, mainly wooden Elliott Medway-type huts. Consequently, the teaching areas at the lower school are substandard.
That is the physical position at the lower school, but in addition there are the human dimension and the accompanying practical difficulties arising from the split site. To emphasise these genuine problems, I can do no better than quote from the Office for Standards in Education inspection report of May 1996:
The school's split site poses problems for its work. The lower school buildings provide a poor learning environment…The school is part way through a phased development of its accommodation,

designed to consolidate the school on one site and improve facilities in the future. The quality of some of the new buildings is good, for example the sixth form area and computer rooms
at the upper school.
However, for pupils currently in the school, the provision and standard of accommodation are unsatisfactory in a number of respects. The school occupies two sites approximately 1 km apart. The unavoidable movement of teachers, and to a lesser extent, pupils, has a negative impact on the quality of education provided.
I graduated in geography some 35 years ago—a long time ago—and therefore feel for the subject, although I have forgotten most of what I learned at university.
The report continues:
The extent of movements reduced teaching and preparation time; for example there are 31 such breaks in geography in each timetable cycle apart from those coinciding with breaks and lunchtimes…The lower school presents a dispiriting learning environment. This site provides little stimulus to pupils on entry to the school…Some teachers spend a high proportion of their time with only one part of the age range and this on one of the two sites. This hinders the development of consistent practices and communications…Good formal and informal communications seek to overcome the problems of having staff on two sites; the tension between seeking to reduce staff travelling and ensuring full participation in subject teams has not yet been resolved satisfactorily".
The situation, then, is that time is wasted in travelling between the sites. There is stress on staff; inefficient use and duplication of equipment and materials; timetabling constraints; under-use of specialist facilities at one site and over-use at the other; and there are revenue funding implications for the local education authority and the school itself. My hon. Friend's Department has allowed £23,000 towards the school budget to try to cover the split site situation. Cornwall makes the figure up to £45,500. The governors' realistic assessment of the cost of the split site is £77,000.
The conclusions reached by the Ofsted inspection team clearly show the need to improve the position as soon as possible. One of the key issues identified by the inspectors was the need for the local education authority and the governors to
continue to seek to overcome the constraints imposed by the split site, and, in the short term, to improve the learning environment in the lower school and to integrate it more fully into the life and work of the school as a whole.
The governors and the staff are attempting to do that. Certain improvements and extensions are being undertaken. I must emphasise, however, that, when those improvements are completed, the difficulties associated with a split site will still not be resolved.
The Cornwall local education authority submitted an application to the schools renewal challenge fund for £3.35 million to complete the consolidation process at Liskeard. I realise that that is a large sum of money, given the fact that the total amount of SRCF grant available in the second tranche was just £15 million. Although the application was for £3.35 million, the total cost of the scheme is £4.77 million. Approximately £1.4 million can be found from other sources, such as the basic need capital allocation, the school's bid for technology college status and capital receipts.
Cornwall LEA—like all of us—recognises the constraints on capital funding nationally. It prioritised the SRCF bid into independently deliverable components.
The first priority is for a new technology and art block, which will cost £2.25 million. The second priority is to convert the existing outdated technology rooms into science and general teaching rooms, at a cost of £470,000. The third priority is a music suite to complement the recently established dance and drama suite, at a cost of £590,000. The fourth and final requirement is to build 16 new general teaching rooms to replace the 20 or so existing wooden huts, to which I have already referred.
That is the total need, but one reason for identifying four priority categories was to show that, once the first component—the technology and art block—is completed, it will enable the LEA to convert the existing technology and art rooms into science laboratories and general teaching rooms. That in turn will enable the greater part of the curriculum for the whole school to be delivered in permanent buildings on a single site.
Furthermore, had the SRCF bid been successful, it would have enabled the LEA to negotiate a favourable tender with the contractor now on site. That would have provided considerable savings compared with a new contract at some stage in the future. Sadly, our application for funding was not successful, and we will have to start again. Much to the disappointment of the school and the community it serves—there is genuine anger in some quarters—unless the Minister is forthcoming tonight, we shall have to wait some time before the scheme materialises.
I do not wish to dwell on the reasons for refusal given by my hon. Friend the Minister in her letter to me dated 4 February 1997. We must be positive, and look to the future. In that same letter, however, my hon. Friend not only stated that she had visited the school but confirmed that the work was urgently needed; my purpose in raising this subject tonight is to further the process.
I mentioned that the new Liskeard junior school was under construction. It was in my first Parliament, in 1972, that I initially raised the need for a new Liskeard junior school. That was 25 years ago. I only hope that Liskeard, the catchment area for the secondary school, and, indeed, my successor will not have to wait a further 25 years before secondary education in the town is consolidated on a single site.

11 pm

Mr. Paul Tyler: I am grateful to the hon. Member for South-East Cornwall (Sir R. Hicks), and to the Minister, for allowing me to speak briefly.
The hon. Gentleman and I were sparring partners in the 1970s, and, for a brief moment—almost the twinkling of an eye—I interrupted his parliamentary career. I hope that, on this occasion, he will forgive me. I am glad to say that subsequently, in the 1990s, we have been parliamentary neighbours—and, indeed, cross-party collaborators.
I know that this may be the hon. Gentleman's final contribution in the House, and I express, from the Opposition Benches, my personal appreciation—and appreciation on behalf of many other hon. Members, and the people of Cornwall—for the work that he has undertaken on behalf of his county, his constituency and,

if I may say so on a cross-party basis, those who believe in democracy and the way in which it should be represented in the House.
I live on the outskirts of the catchment area of Liskeard school and community college. I think it fitting not only to pay tribute to the talents of the hon. Member for South-East Cornwall and his advocacy of his constituents' interests, but to underline his final point: that he and, I think, all of us look to the Minister not to attempt to resist the eloquent plea that has been issued to him. It would, I think, be the final triumph of the hon. Member for South-East Cornwall's career in the House if, between us, we could persuade the Minister to be forthcoming and generous, and to use his common sense to show that, on behalf of the Government, he can respond to us positively.
I am sure that it would delight not just the hon. Member for South-East Cornwall and his successor—whoever that person may be, and whatever his party may be—and those who are present now, but, in particular, the people of Liskeard and the area it serves, if the hon. Gentleman's advocacy is successful. I hope that the Minister will respond accordingly.

The Parliamentary Under-Secretary of State for Education and Employment (Mr. Robin Squire): I am grateful to my hon. Friend the Member for South-East Cornwall (Sir R. Hicks) for giving me the opportunity—indeed, the privilege—to respond. I echo what was said by the hon. Member for North Cornwall (Mr. Tyler) about my responding to my hon. Friend's last speech in the House of Commons. Let me make it clear that I regard him as a friend: we have known each other for a time—although not, I immediately concede, as long as the hon. Member for North Cornwall can claim.
It is a measure of my hon. Friend's status that, just after 11 o'clock on a weekday evening, a series of hon. Members on both sides of the Chamber were surrounding him to listen to his speech. In addition to the hon. Member for North Cornwall, we have the hon. Member for North Devon (Mr. Harvey) and my hon. Friends the Members for Falmouth and Camborne (Mr. Coe) and for St. Ives (Mr. Harris), who are here in recognition, and my hon. Friend the Member for Ribble Valley (Mr. Evans), which, we would all concede, is a slight jump from Cornwall. The key message is that their presence is in recognition not just of the status of my hon. Friend the Member for South-East Cornwall as the senior Cornwall Member, but of his role as a Member of Parliament over nearly 27 years, where he has demonstrated what I would describe as a commendable independence of spirit, and has attracted the significant loyalty of friends, including those on the ministerial Bench.
My hon. Friend raised the subject of Liskeard school and community college in a typically robust and clear way. It is an area that he has represented with considerable skill, and a subject in the general area of education that, as he made clear, he has raised many times before.
I take this welcome opportunity to underline the Government's commitment to improving the condition of our school buildings in general. We estimate that over £6 billion has been spent on county, voluntary-aided and grant-maintained school buildings this decade. That is a substantial national investment, which we wish to continue.
As my hon. Friend has said, it would normally have been the task of my hon. Friend the Member for Chesham and Amersham (Mrs. Gillan) to respond to this debate, as she is responsible for capital funding for schools, but she cannot be here this evening because of other ministerial business. However, as he said, she has first-hand knowledge, and therefore she regrets her absence. She enjoyed her visit to Liskeard following his invitation in November 1995, a visit that he knows I narrowly missed because of a reshuffle of responsibilities but a few months before. Speaking as the son of a Cornishman, my loss was my ministerial colleague's gain, and I have to some extent been able to draw on her knowledge in making my remarks this evening.
In the past couple of years, we have been able to allocate significant sums for the improvement of schools in Liskeard. This year, we have introduced the schools renewal challenge fund—the SRCF—so that we can target resources on meeting urgent needs, while increasing value for money. That has proved enormously successful and popular. Cornwall, and the Liskeard area in particular, have felt the benefits of that initiative.
In July last year, we were able to allocate to Cornwall £621,000 towards the rebuilding of Liskeard junior school. As my hon. Friend the Member for South-East Cornwall made clear in his speech and I readily affirm, that followed significant activity by my hon. Friend in pressing for such funding over a number of years, although I was unaware that it stretched to the full 25. That was on top of £756,000 that had already been allocated to Cornwall in response to bids for the two Liskeard schools in its annual capital guidelines, to which I shall return, assuming time allows.
As I have said, the SRCF has been very popular. Inevitably, it has been highly competitive, and we have been able to support only the best of the bids that we have received—those that have most closely met the published criteria and that offered the best value for money. Judged against that competition, we were unable to make an allocation for Cornwall's bid to bring Liskeard community school on to a single site.
That does not have to be, and is not, the end of the matter. It is not a once-for-all rejection. There is absolutely nothing to stop Cornwall making a further bid in 1997–98, when the SRCF will continue with at least £20 million. I recognise that that bid will not be backed in person by my hon. Friend the Member for South-East Cornwall, at least not in the Chamber, but I understand that the local education authority has been in touch with my Department's architects to discuss how the cost-effectiveness of the scheme might be improved.
In total over the past two years, Cornwall LEA has received £1.377 million specifically for Liskeard junior school and Liskeard school and community college through the various means of ACGs, supplementary credit approvals, and so on. That is a significant sum going to the schools in one town—as I know colleagues representing constituencies elsewhere would readily recognise—but is of course not the end of the story.
My hon. Friend will be aware of significant levels of capital funding that have been made available to Cornwall through annual capital guidelines, which feed through into the authority's general borrowing approval. We were able to allocate £6.156 million for 1996–97 and £6.372 million for 1997–98. To put that in context, it represents 66 per cent. of Cornwall's bid, compared with the national average of 21 per cent. That shows that Cornwall has done rather well in terms of allocations in general for school buildings, and I hope goes some way towards answering the odd comment that I have seen, which has implied that Cornwall has been treated less favourably than other authorities.
I should, of course, draw attention to the wider point, that the Government do not control the funding of projects at individual county and voluntary-controlled schools. LEAs decide their own capital expenditure priorities, and it is their responsibility to make the best use of resources available to them. It has been Cornwall LEA's decision to spend the money on schools other than Liskeard in the past. That is not a criticism, necessarily. The priorities are for the authority to set, and it must answer for them to the local community.
I have referred a few times to ACGs. They in turn do not represent all the resources available to LEAs for capital spending. There are, of course, other resources available. LEAs can invest capital receipts and use funds from revenue budgets if they so wish. We have made it easier for authorities to do that in a number of ways. For example, for two years from April 1996, LEAs have been required to set aside only 25 per cent. of proceeds from the sale of surplus assets for debt redemption, as opposed to the previous 50 per cent. That will mean that yet more is available for new capital projects.
We encourage LEAs to explore all funding routes available. Besides the SRCF, they should also consider the private finance initiative. We are committed to achieving the potential opportunities of more and better investment in schools' infrastructure that are offered by the PFI.
I cite one example—it would not be fair to cite more—of an LEA that is taking forward an innovative PFI project to replace the worn-out kitchens of its entire school stock. There has been a good deal of private sector interest from local catering companies, but some larger national players have shown an interest, too. I know that my hon. Friend would agree that it is appropriate that we should encourage all LEAs to consider the PFI options seriously in the interests of opening up investment opportunities and securing better value for money.
Substantial sums have been directed towards improving and renewing educational buildings in this decade. For 1997–98, we have announced record levels of support for capital programmes in schools—just short of £700 million. When the substantial support that we announced for the previous two years is added to it, a total of more than £2 billion in centrally available support has been made available over three years.
To return to the subject of the debate, the picture in Liskeard is far from bleak. As I have made clear, Cornwall has received substantial sums over the past two years for schools' capital expenditure generally and for Liskeard in particular, and there remains the opportunity to bid for further funding in the near future. I very much trust that, when my Department's architects visit the area, they will not only be able to give the LEA useful advice

but return with even more knowledge that will enable us better to consider what I am sure will be a subsequent LEA bid.
I am grateful to my hon. Friend for giving me the opportunity to set out the facts. I hope that he will understand if I conclude by wishing him, on behalf of the whole House, a long, happy and healthy retirement.

Question put and agreed to.

Adjourned accordingly at thirteen minutes past Eleven o'clock.